Number one DVD by mail and instant Movie download company, Netflix shares have taken a dive. And the guilty party responsible are Youtube, after planning to offer their own pay to watch movie streams service.

Netflix who have enjoyed having little competition in this market saw their shares down 3.57% to $40.29 on September 3rd. YouTube are deep in negotiations for offering Movies on a pay per download/watch basis.

Netflix have been offering an on demand internet movies service to existing subscribers of its DVD by mail rental service for nearly two years. Netflix subscribers pay an additional fee to watch unlimited movies online. This resulted in massive growth for Netflix.

The service has also found its way to Microsoft’s Xbox games machine, TiVo and other set top boxes.

The video giant owned by Google have been making deals with professional content providers for a long time—including Disney, MGM, and Lions Gate amongst others in the last year.

If the deal happens as expected, the competitive edge that Netflix has in the online video rental business would began to diminish.

On July 23, 2009, Netflix reported better than expected profits and even raised its forecast for the year. Netflix iare obviously optimistic about the next couple of quarters, but smart investors are cutting and running.

Of course if the Youtube experiment is a success, there are many other online websites that would happily offer a similar paid service.

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