Netflix Woes Deepen With Plunging Stock

By MICHAEL LIEDTKE
The Associated Press
Tuesday, July 24, 2007; 9:36 PM

SAN FRANCISCO -- Netflix Inc. frustrated investors and customers alike Tuesday as its stock price plunged to its lowest point in more than two years while its Web site was inaccessible most of the day because of unexplained technical problems.

The 7 percent drop in Netflix's shares wasn't a shock after the Los Gatos-based company reported the first quarterly customer losses in its history and dimmed its earnings outlook for the rest of the year.

But the Web site outage was a surprising _ and embarrassing _ setback.

The online hub of Netflix's rental system went down Monday evening and remained unavailable until Tuesday afternoon, locking out subscribers for more than 18 hours. Spokesman Steve Swasey attributed the outage to database problems.

The breakdown wasn't related to San Francisco power outages that were blamed for temporarily knocking out several other popular Web sites, including Craigslist, Technorati, Typepad and Livejournal.

Service to Netflix's site was finally restored around 3 p.m. PDT after Netflix's engineers had missed several earlier estimated times for fixing the trouble.

Netflix had been in the process of updating its computers to reflect price reductions that took effect Tuesday.

Netflix was the 74th most visited Web site in the United States during the week July 21, according to the research firm Hitwise. It accounted for about 12 percent of all U.S. online traffic to movie and entertainment sites, ranking behind only Amazon.com Inc.'s IMDb.com.

The timing of the breakdown was especially awkward because it occurred shortly after Netflix management had briefed industry analysts on plans to improve its customer service in an increasingly bitter battle with rival Blockbuster Inc.

Lowering prices will erode Netflix's profit _ a sacrifice that the company is making in an attempt to regain market share from Blockbuster. The decision led to a further drubbing of Netflix's already battered stock, which has plummeted by 38 percent this year.

The shares dropped as low as $15.62 early Tuesday, their lowest point since June 2005. The stock later rebounded, but still finished down $1.20 at $16.07.

Hoping to retain more of its current customers while enticing new subscribers, Netflix is decreasing monthly fees by $1 on its two most popular plans to match Blockbuster's prices for comparable Internet-only services.


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