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Netflix Goes Dark And Finds It's No Place To Be

Thursday, 14 Aug 2008 | 12:33 PM ET
Netflix
AP
Netflix

It started this morning with an email apology from online movie rental powerhouse Netflix, confirming to its 8.4 million users that the company was suffering a shipping and distribution outage.

I called the company this morning to get more information and spokesman Steve Swasey was candid, forthcoming and easily accessible; hallmarks of good damage control when a company is under the gun. As soon as I got off the phone with him, I went on the air and broke this story.

He told me that Netflix is "having severe system issues on our shipping," adding that the company did not ship any DVDs on Tuesday, shipped some on Wednesday from about half its distribution centers, and none so far today. He also said that the company is "as frustrated if not more frustrated" than its customers.

Netflix engineers, he tells me, are working "feverishly around the clock" to get this issue solved, but at this point, they're not sure what the problem is, or how, necessarily to fix it.

Meantime, as difficult as this might be for the company's customers, it becomes potentially a bigger issue for Netflix investors. The company says the outage affects a third of its 8.4 million customers, and that Netflix executives are trying to figure out what kind of credit or refund to offer. With so many users affected, that could add up, and in a hurry. The company says this has only happened one other time in its history, so there's really no track record on which to rely as far as what the company should, or has, done.

    • Who Owns Netflix

The company's websitehas gone down before, however. Notably in July for several hours, just as rival Blockbuster began an ad campaign spotlighting that it offers both an online and brick-and-mortar retail strategy for consumers, with its obvious benefits to a web-only retailer. There was also a serious web outage in March which left the Netflix site dark for almost a full day.

A software glitch at the distribution center is likely unrelated, which could be even more troubling. It's certainly a developing story and worth watching.

Meantime, to Netflix's credit, Swasey reminds me that the company is the Number 1 rated web site for customer satisfaction, according to Nielsen Net Ratings and ForeSee, and that latter organization has made that determination in each of its last seven consecutive surveys. Says Swasey, "We work really hard to engender trust and loyalty and commitment from Netflix members. We take this extremely seriously. This hurts us that we're not serving our members as they expect us to."

Netflix Outage
An outage at Netflix is affecting one-third of the company's customers, reports CNBC's Jim Goldman.

Video: An outage at Netflix is affecting one-third of the company's customers.

Questions? Comments? TechCheck@cnbc.com

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