This Is the Chart That's Freaking Netflix Out

In a letter to shareholders today, Netflix highlighted what it describes as a "sobering" trend happening in the Netherlands. The letter, posted on Netflix's website along with an earnings report that sent the stock price up as much as 16 percent, included a link to this chart, which shows Google search traffic in the European country.

What is Popcorn Time, and why does Netflix think it's important enough to tell investors about? Popcorn Time is one of the most popular services for watching pirated movies and television shows right now. It's often called "the Netflix for pirates" because of how easy it is to find and stream illegal content. The software is available for every major computer and smartphone operating system, including the iPhone—for users willing to violate Apple's terms of service and "jailbreak" their device.

Popcorn Time has found an unusually fervent fan base in the Netherlands. It's the second-largest market for the app with 1.3 million downloads, according to the blog TorrentFreak, citing developer Time 4 Popcorn. That would be about 8 percent of the country's population. Bonkers. Netflix and HBO, which both offer online services in the Netherlands, don't break out subscriber numbers there.

The Netherlands is an unusual case. In many markets where Netflix operates, the service is much more popular than Popcorn Time, according to Google data. But free networks that are too good to be legal can go global quickly. After all, the Napster revolution started on college campuses, and Pirate Bay, which was raided by police last month, was initially a quirky Swedish export. The U.S. is Popcorn Time's biggest market with 1.4 million downloads as of September, according to TorrentFreak. Time 4 Popcorn didn't immediately respond to a request for comment.

In the letter signed by Netflix Chief Executive Officer Reed Hastings and Chief Financial Officer David Wells, they were trying to make the case that piracy, not HBO or Hulu, is the real enemy. "Piracy continues to be one of our biggest competitors," they wrote.

This is not a new message. Netflix executives have been publicly making this case since at least 2005, when the company's main business was shipping DVDs through the mail. It's also a classic Steve Jobsian argument, which he used to convince the music labels to sell their songs for 99 cents a pop. "We have a far superior experience than Kazaa," Jobs said in a 2003 interview with Esquire. Popcorn Time shows that as the legal options improve, so do the illicit ones.