March 08, 2011, 2:11 PM — Shares of online video streaming market leader Netflix (NASDAQ: NFLX) dropped more than 5 percent Tuesday after Warner Bros. announced a deal with Facebook that would allow users to rent or buy movies through the social networking site.
By mid afternoon, Netflix shares were down 12.30, or 5.9 percent, to 195.10. Unless it rebounds slightly, the stock will close below $200 a share for the first time since Jan. 26.
This is the second time in recent weeks that Netflix shares have been rocked by news that other large Internet companies were joining the streaming video market. On Feb. 22, NFLX dropped 5.9 percent to 221.60 after Amazon.com announced it will give its "Prime" customers -- people who pay $79 annually to get free two-day shipping -- a selection of 5,000 movies and television episodes to stream via their computers for free (see link above).
It's no surprise that other companies want a piece of the potentially huge streaming video market. Google, Apple, Microsoft and cable TV providers all are deploying or planning similar initiatives.
Facebook's entry into the market, though, could be a huge deal. The social networking giant has 600 million members worldwide and has created a platform that leverages user recommendations and word of mouth. Dropping videos into the mix could generate a ton of revenue for Facebook and video producers.
Warner Bros. said, starting on Tuesday, Facebook users in the U.S. can rent "The Dark Knight" through the movies official Facebook page for $3 or 30 Facebook Credits. More titles will become available in coming months.
Users will have up to 48 hours after their purchase to watch videos on Facebook and also will be able to post comments on the movie, interact with friends and post status updates.
Since hitting an all-time high of 247.55 on Feb. 14, Netflix shares have fallen 21 percent.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.