Peerflix, the Palo Alto, CA-based online DVD trading platform, is in the process of closing down its main swapping service, after adoption and reliability issues, reports Webware. It will continue as Peerflix Media Network, an online advertising network focused on movie watchers. As Rafe points out, “Instead of getting more reliable as its user base grew, the service got less and less reliable, most likely as users stopped participating in it.” Oy maybe Netflix (NSDQ: NFLX) was just easier and more reliable )well, except today, when Netflix’s site was down for about 12 hours).

According to the e-mail note sent out by Peerflix to users: “While we have made considerable investments in our marketplace platform over the past four years, unfortunately the escalating costs of operating the marketplace do not make that business viable at this juncture. As we move out of the DVD marketplace business, we are focusing our energy and resources on building the Peerflix Media Network which is now the web’s fastest growing vertical movie network.”

The company received two rounds of funding, the first round from Battery Ventures, BV Capital and 3i (the amount was undisclosed), and the second $8 million round, from previous investor. Also, coincidentally, 3i just announced that it is exiting early stage investments.

• Peerflix Receives $8 Million Second Round