SEC Investigates Netflix CEO Reed Hastings Over Facebook Posting

alexander_686 writes "The SEC is investigating Netflix CEO Reed Hastings over one of his Facebook postings. The agency is questioning his July 1 Facebook posting, seen by 200,000 followers, in which he said customers watched 'over 1 billion hours' of videos on Netflix in June. He had previously posted on his company blog that members were viewing 'nearly a billion hours per month.' From the article: '“We think the fact of 1 billion hours of viewing in June was not ‘material’ to investors, and we had blogged a few weeks before that we were serving nearly 1 billion hours per month,” Hastings said in the filing today. “We remain optimistic this can be cleared up quickly through the SEC’s review process.”'"

Wow, such a minor quibble too.

[ZorinLynx]

I'm surprised something this innocuous can anger the SEC. Wow, they're a lot stricter than I thought!

Does everything a company or company offer say have to be heavily vetted by a legal team before it can go out?

Re:Wow, such a minor quibble too.

[Anonymous Coward]

Yes.

They're busy with this...

[ZeroSerenity]

...and the banks are walking? Seriously. Priorities people!

Re:What?

[Missing.Matter]

Maybe that's more a problem with analysts extrapolating incredible conclusions from small isolated bits of data... also known as anecdotes. Anyone basing buying decisions on facebook posts deserves to get burned.... SEC doesn't need to get involved here.

Re:They're busy with this...

[future assassin]

Netflix couldn't afford the gold plated hooker and blow trips for the politicians.

There appears to be an agenda here...let me guess:

[JRHelgeson]

I wonder if the CEO donated to the 'wrong' party this past election. This sounds an awful lot like revenge.

Re:Wow, such a minor quibble too.

[AK Marc]

A company can not release material that may affect investors unless that release is public. I guess the SEC is asserting that posting it on facebook, where "friends" get it, but the rest of the public doesn't get it pushed to them, even if it is viewable, is a breach of insider trading rules. His "friends" get valuable insider information before everyone else.

Re:What?

[AK Marc]

He is alllowed to say that.. The issue is, is a "blog" on Facebook (where friends get updates pushed to them, and non friends get lower treatment) a "public forum"?

This they're investigating?

[Anonymous Coward]

They haven't done anything about a few financial institutions purposefully destroying the world's economy, but a CEO saying his company is doing really well on facebook is a problem.

This isn't the nineteenth century, when it took a month to get the information out. Just because the stock holders are too stupid to follow him a facebook.

Also, we need to make a distinction between investment and simple stock ownership. The only time it's investment is during an IPO. After that, it's pretty much commodity trading hoping to make money off of market instability.

Re:Back of envelope calculations

[O('_')O_Bush]

Well, that is per account. My family has four people on one account, making the 1 hr/day average very easy to hit. It might be better to think of it as 30m accounts, 60-120m viewers.

At that point, eyebrow raising possibilities seem to be unsurprising and mundane.

Re:What?

[Anonymous Coward]

The SEC isn't trying to protect the analysts who have access to the Facebook page. They're trying to protect the rest of the investors who DON'T have an equal opportunity to look at those bits of data. The SEC doesn't care what conclusions people draw from the information--it's just that everyone gets a chance to make their own decisions about such things. If the analysts draw bad conclusions, they will be punished when their share prices drop.

The real weaknesses in this case would be that the bit of data is not very interesting because a nearly identical bit of data had already been given to the public a few weeks earlier, and that 200,000 people had access to this Facebook page, so it feels more "public" than "private." I would guess that this investigation won't last very long before it's dropped.

Re:Back of envelope calculations

[girlintraining]

Netflix had 29.4 million online streaming accounts as of September 2012, and with 720 hours in a month, 1E9 hours works out to each subscriber viewing an average 34 hours of online streaming per month.

You seem to be forgeting that each individual account can have multiple devices streaming simultaniously. Only PC-based playback is restricted to single-instance. I don't know if Netflix users watch the same amount of online material as their TV-based counterparts, but we can infer a few things by assuming they do. The average person watches about 51.1 hours [nytimes.com] of TV a month. There are an average of about 2.55 people per household. That comes out to about 130.3 hours watched per household. Assuming 1 Netflix subscription per household, you get 3.8 billion hours of viewing per month.

I don't think 1 billion hours from that number of users is all that difficult to believe. Netflix users aren't substituting time in front of the TV straight across; That it's a supplimental activity is not an unreasonable conclusion. The CEO's numbers are well-within believability.

Re:What?

[msauve]

analysts see stuff like this and make assumptions about the number of customers,

Their problem, he made no claim about the number of customers. First of all, it was already public info that they were almost at 1e9 hours, so saying they hit that level is hardly "material." Secondly, it can easily be explained by existing users simply watching more in June than in May, due to school aged children being home during the day.

Re:Wow, such a minor quibble too.

[Sir_Sri]

I'm surprised that Slashdot is bothering with this.

I'm not. It hits on a couple of important areas for slashdot readers. The reach of the SEC into social networking, most especially if they consider this to have been 'material information' given away privately that could lead to insider trading, and because it effects someone at a well known tech company saying something a lot of us could know or talk about. If you were a network admin at netflix and posted on your facebook page that you just served your first billion views month bragging about the professional accomplishment would you be in SEC trouble (and would your employer?).

As TFA points out, disclosing to 200k people should maybe count as a press release (especially if anyone can see the page), but uh... it might not. The law and common sense don't always align and it would be problematic to find out the hard way that this was in someway unlawful. I don't work for any traded companies, but I could envision a situation where someone could disclose to their friends work related successes that count as material investor information, and that could cause trouble. A lot of it.

Re:What?

[sribe]

So how many Facebook pages do you think investors would have to subscribe to in order to follow every senior executive of every company in their portfolio?

How many press release services would they have to follow? How many financial news shows would they have to watch? How many financial news web sites would they have to follow, and how closely? How many blogs would they have to read?

The company's obligation is to make sure that the information is available to the public, not that it is noticed by every single member of the public.

Having said that, the regulation is vague as to whether a Facebook page would fit the bill. Any material information has to be disseminated through a Form 8-K filing or "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public."

Yes, and somebody at the SEC is being a shithead about this.

Re:Wow, such a minor quibble too.

[tlhIngan]

That's misunderstanding how Facebook works.
Any one can wilfully choose to subscribe to his updates, so it's the same as them being public.

OK, where's the URL to the post? And remember, "public" doesn't mean signing up for an account on Facebook. I want to go to that URL and see all updates. WITHOUT creating an account, and last I checked, you can't "friend" without an account.

If I have to register, well, it's not public anymore. Because what any company can do is then create a company blog, post to it and require registration to proceed. It's the same thing - create a "public" website where all the information is hidden behind a registration wall. And hell, why can't the company ask for demographic information during registration? Even very personal details that would make most investors shy away from registering.

There are reasons why there are companies who specialize in doing nothing but spreading press releases - because they get it out there everywhere - in print, on investor sites, and in general news. These guys get the word out. Heck, a public blog site works just as well.

Of course, in this case, it's probably a misunderstanding - the poster didn't think such information could possibly be interesting to investors, just a meaningless statistic. But the SEC doesn't proactively go after companies - they work on complaints, and what happened here was some investors probably found out after the fact and it offended them because such statistics are important to see if Netflix is grown, dying, or stagnant. Hell, people were leaving Netflix in droves a few months ago due to all the changes.