Netflix

Netflix's share price closed trading Friday at $205 per share, down 32 percent from the company's 52-week high of $304.79 per share, which it hit last month shortly after announcing it would raise prices.

Yes, the entire stock market has stumbled since then but it doesn't totally explain the dramatic plummet of Netflix shares, at least to the satisfaction of some. A group called the Shareholder's Foundation from San Diego announced earlier this month that a law firm would investigate Netflix on behalf of investors over "potential federal securities laws violations."

The group said in a press release "the investigation concerns whether Netflix or others may have violated securities laws by issuing a series of statements regarding its business, its prospects, and its operations that were materially false and misleading." The group's manager, Trevor Allen, did not respond to an interview request.

If this sounds to you that someone is warming up a shareholder lawsuit, that's how it read to me as well. Suits like that are not unusual. What's unusual is the dramatic nosedive of Netflix's stock.

So far, it appears as if the market is worried about the more competitive environment Netflix faces and how Netflix's film studios and TV network suppliers appear to be raising prices dramatically. There is also some concern that Netflix may have alienated a significant number of customers by announcing the price increase.

Last month, the company said customers who used to pay $9.99 to rent one disc at a time as well as to receive unlimited access to Netflix's streaming library must now pay separate fees for streaming as well as DVD rental. Starting on September 1, each plan will cost $7.99 and to acquire both discs and Internet streaming will cost $15.98.

Netflix tried to downplay the hostile reaction by customers to the increase, but many thousands if not millions of customers took to the Web to complain. Netflix isn't disclosing how many customers cancelled their subscriptions as a result but, it seems like a safe bet that more subscribers will the drop service in coming weeks, especially when they find the new charges on their statements.

Netflix says it anticipated the backlash and also predicted that the incident would blow over by the fourth quarter.

Nobody is going to be forced onto the streets as a result of a $6 per month video-rental increase. Still, a 60 percent boost is a lot, and many of the more than 30,000 people who responded to a CNET poll last month, don't think it's worth it to pay more when they're not receiving more.

The complaint about Netflix's streaming service, which is quickly becoming the way most Netflix customers prefer to rent videos, is that the library is too dated. There just isn't enough of what people want to watch.

Meanwhile, competing video-rental services from Wal-Mart's Vudu, Amazon, and Blockbuster are all picking now to announce new enhancements and special offers. Vudu has a new iPad feature and Amazon now offers 100,000 titles in its pay-per-view library. No doubt the scene next week, when Netflix's price hike kicks in, will look like one of those nature shows where seagulls swoop down on migrating baby sea turtles.

Rivals will be doing all they can to pick off unhappy Netflix customers.

I've said this before and it's worth repeating: shop for any Netflix replacement very carefully before jumping. Even at $16 per month, Netflix's CD and streaming combo is hard to beat.