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SEC Investigates Netflix CEO Reed Hastings Over Facebook Posting 190

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.”'"
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SEC Investigates Netflix CEO Reed Hastings Over Facebook Posting

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  • by ZorinLynx ( 31751 ) on Thursday December 06, 2012 @09:22PM (#42211327) Homepage

    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?

    • by Anonymous Coward on Thursday December 06, 2012 @09:32PM (#42211389)

      Yes.

      • Which is kind of a shame considering how tired we all are of your standard corporate BS.
        It's refreshing to see a company actually say something straight and to the point without any wishy washy qualifiers.

        • by Cenan ( 1892902 )

          The qualifiers are what makes the post newsworthy, and not just yet another piece of corporate dick-swinging. 1 billion hours? Of what? The menu? How many of those hours are re-serves from previously dropped connections? How many users contributed to the 1 billion hour number?

    • Just because they never did anything about the whole 2008 mess, don't think they aren't watching you.

    • by AK Marc ( 707885 ) on Thursday December 06, 2012 @10:04PM (#42211645)
      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.
      • so...how does one make something public without releasing it??

        Is the facebook profile set to "friends only" (doubt it with 200K views of the post) therefore wouldnt making the post BE making it public?

        all im saying is how is releasing something on facebook any different than releasing it in any other medium in this day and age?
        • by AK Marc ( 707885 )
          Public is defined by the SEC. I'm not a lawyer, and none of your questions look serious. They are all easily answered with a google search if you want to know, but it looks more like you want to complain about the SEC by asking stupid rhetorical questions in response to my post.
          • no, i was genuinely serious. I dont know how the rules work, but if you can only make public by specific channels, I find issue with that.
            • by AK Marc ( 707885 )
              Public channels aren't public if you deliberately conceal them. Open conference calls, open webcasts, and open press releases are all ok but a private web announcement outside of regular channels would never count as a proper release. He has an appropriate defense in that the released numbers were not much different than ones given previously released properly.
            • no, i was genuinely serious. I dont know how the rules work, but if you can only make public by specific channels, I find issue with that.

              Not "specific channels" just public ones.

        • Is the facebook profile set to "friends only" (doubt it with 200K views of the post) therefore wouldnt making the post BE making it public?

          No
          Consider that you have to be a member of Facebook, AND you pretty much have to check the page, or subscribe to it. Posts aren't easy to find, once they scroll to far.
          If I hang up something on the billboard at the local coffeeshop, is it a public post? What if I hang it up somewhere where only members are only allowed to enter?

        • "In 3 hours we will be making a press release regarding our service achievements in the month of June. Watch this space!"

          3 hours later

          "As promised, we would like to announce to everyone that we surpassed 1 billion viewed hours for the month of June"

          Skipping the first step would allow people who follow your facebook profile closer than others (friends) a jump on the general public of a number of hours. If you used that to your advantage, you could make a bit of money. Whenever you issue a press statement, yo

    • I was thinking the same. Whatnext, if he posts that he has a headache he gets investigated for stock manipulation?? you know because people MIGHT think that he is REALLY sick??

      Can someone explain why the SEC would even care about something as simple as bragging??
    • He donated to the wrong party.

  • Can someone explain why saying something like this can get you in trouble with the SEC?

    • me too.

      is there doubt over the figure ?

    • Re:What? (Score:5, Informative)

      by laffer1 ( 701823 ) <luke@@@foolishgames...com> on Thursday December 06, 2012 @09:42PM (#42211463) Homepage Journal

      Because analysts see stuff like this and make assumptions about the number of customers, costs in terms of bandwidth and licensing, etc. that feed into the stock price. If a CEO makes a claim like this, it has all sorts of repercussions on how wall street views the stock and what it's worth.

      Think of it this way, if I say AMD processors are awesome it's not a big deal. If the CEO of Dell says it, it might indicate a shift to more AMD units which in turn could affect the ability of Dell to sell X computers as some customers don't like AMD, costs they may face, redesigns of products (new motherboards or whatever), customer perception, etc. Investors read into all sorts of things.

      • Re:What? (Score:5, Insightful)

        by Missing.Matter ( 1845576 ) on Thursday December 06, 2012 @09:59PM (#42211603)
        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:What? (Score:5, Insightful)

          by Anonymous Coward on Thursday December 06, 2012 @10:19PM (#42211759)

          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: (Score:3, Interesting)

            by sribe ( 304414 )

            They're trying to protect the rest of the investors who DON'T have an equal opportunity to look at those bits of data.

            Yep. All the investors who don't have an internet connection, or don't know how to access Facebook, or WHO DON'T FOLLOW NETFLIX CLOSELY ENOUGH TO KNOW THAT THE CEO HAS A FACEBOOK PAGE. Yeah, because those investors need to be protected from, uhm, you know, something or other.

            ...that 200,000 people had access to this Facebook page, so it feels more "public" than "private."

            Yes, I see that we actually agree on this. I just wanted to pile on the mockery of the SEC's asinine position. Meanwhile, the hedge firms and their blogger sock puppets manipulate the shit out of volatile stocks, and firms use HFT to t

            • 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?

              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."

              • Re:What? (Score:4, Insightful)

                by sribe ( 304414 ) on Thursday December 06, 2012 @11:43PM (#42212253)

                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.

                • Press releases can be subscribed to through central services. You just list the companies you are interested in. No such option for Facebook. You'd have to track down every page of every senior executive manually. It's really not the same thing.

                  But I'm sure it's much more comforting to just believe that a beaurocrat is a shithead.

                  • by Svartalf ( 2997 )

                    You'd have to have some newsie cover the press release from the central service or be a subscriber to see the press release.

                    Sorry, like someone else on the linked article...your line doesn't work very well.

                • 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.

                  But posting it to Facebook is not making it available to the public. It is making it available to the members of Facebook.

                  • by Svartalf ( 2997 )

                    Is it? Making it available to a PR service doesn't assure that it is making it available to the public either. If a news source doesn't pick it up from there or you're not subscribed to the service (hint...hint...) you're never going to see a press release.

                    Connect the dots here, folks...this isn't hard.

                  • by sribe ( 304414 )

                    But posting it to Facebook is not making it available to the public. It is making it available to the members of Facebook.

                    Bullshit. By your logic: publishing something in a newspaper is not making it available to the public, it is only making it available to subscribers; sending out a press release is not making it available to the public, it is only making it available to subscribers of the press release service; putting something in an 8-K filing is not making it available to the public, it is only making it available to people who sign up for that service; announcing something in a conference call is not making it available

              • The other side of it is that there's a lot of reporters and similar in that 200K people.

                it's probably safe to say that there was no intent to limit access to the information though that may not be relevent to the regs.

                If he'd given a press conference then it would likely have to bounce through the same reporters.

            • Yeah, because those investors need to be protected from, uhm, you know, something or other.

              The entire point of the SEC is to ensure a level playing field for investors. Facebook may seem "public", but it isn't because it doesn't provide equal access to everyone. If you can view the information without having to login or provide any identifying information, then it's public. All he had to do was cross-post the same information elsewhere and it would have been fine. The SEC doesn't care what information is given away (well, sorta, but let's not get bogged down on details) as long as it's available

          • 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.

            Actually, the SEC isn't trying to punish Reed Hastings as much as they are trying to protect the traditional media used to make these disclosures regardless how trivial the information.

            Who'd thought that McDonalds may have been breaking SEC rules with those signs stating "Over a billion hamburgers served".

        • 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.

          Exactly backwards, it's not about those basing buying decisions on these bits, it's about those that didn't have access to them and are operating as a market disadvantage. The publication requirement is basically say that you can't give anyone a leg up on every one else by giving information to a selective audience, you have to give it to everyone.

          A company the size of Netflix can certainly afford to set up a system where the CEO can automatically crosspost to his FB page along with a public blog. That's al

        • Another point to consider is that a lot of business data is "Encoded". You hear a lot of stuff like "X company is 'concerned' about some such development". They can't outright say "Jim over at Seagate told me that his last batch of inventory was defective and so he won't meet his numbers this quarter" because that is too obvious. So they say things like "concerned" about "the current trends in the hard drive business being sustainable".

      • Whatever happened to Caveat Emptor?

        As long as the statement isn't something seriously harmful, like "asbesto-brite! The SAFEST, all natural toothpaste on the market, now with even MORE of the microfiber asbestos you know and trust!"

        Misleading and dangerous advertising should be a crime, but giving a rounded (within the actual rules of rounding numbers) tally of your userbase or consumption is just plain silly.

        It shouldn't be government's job to make sre the day traders don't make stupid trades, and research

        • Whatever happened to Caveat Emptor?

          TFA doesn't seem to say the accuracy of the numbers is in question, but rather that the SEC is looking into how he shared what might be considered important information to the investors.

          But as to the "buyer beware" aspect of investing . . .

          Yes, investing is inherently risky. Even buying mutual funds is risky. Even participating in your 401k plan that buys mutual funds is risky. Shooting craps is risky.

          It's not the SEC's job to remove the risk. After all, the flip side of risk is reward. It is, however, th

      • But they had already stated they were near one billion for several months.... Announcing that this day we went over that number in that week isn't really "material evidence" unless somebody is trying to speculate on the hype. Typically, when a CEO does something like this, they push out a "press release" a few minutes later... But frankly that just feeds the trolls.

        This is probably why Apple always starts their press conferences with the "brag reel". Its also why the events are not live streamed... Then th

      • Re: (Score:3, Insightful)

        by msauve ( 701917 )

        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:What? (Score:5, Informative)

      by cdrudge ( 68377 ) on Thursday December 06, 2012 @09:42PM (#42211465) Homepage

      Regulation Fair Disclosure requires that when a company discloses information to investors, that its able reach all investors at the same time. If an investor was not a fan of Netflix, they would not have the opportunity to receive the information.

      This is one of the reasons why companies hold conference calls, issue press releases, etc regarding information pertinent to an investor, so that it's disclosed fairly to everyone.

      The question here is his posting on facebook disclosing a fact that would be material to investors? And does him previously posting about it on a public blog count as previous disclosure. IMHO, much ado about nothing.

      • Regulation Fair Disclosure requires that when a company discloses information to investors, that its able reach all investors at the same time. If an investor was not a fan of Netflix, they would not have the opportunity to receive the information.

        If an investor didn't read the Netflix blog, they might not have the opportunity to received the information, either. Likewise, if something is published in the Wall Street Journal, if you don't subscribe, you might not get the information.

        This is one of the reasons why companies hold conference calls, issue press releases, etc regarding information pertinent to an investor, so that it's disclosed fairly to everyone.

        Someone who doesn't listen directly to a conference call, but instead reads a transcript released by the company after the event doesn't have the information as soon as other people, but the SEC doesn't consider that "unfair", even though there are often limitations on w

        • by Burdell ( 228580 )

          There is no barrier that limits someone from "liking" a company on Facebook

          Sure there is - you have to have a Facebook account. Facebook can terminate your account for various reasons (or no reason at all), which could render you unable to receive such information in a timely fashion.

      • by TheLink ( 130905 )
        Seems way easier for me to follow Netflix or their CEO on Facebook, than for me to be a party to those conference calls, or get those press releases at the exact same time as more "blessed" investors.

        Many may hate Facebook, but if you're talking about public fair disclosure, it's definitely a lot more public and fair than conference calls and press releases. Depending on how public the page/posting is, you might see it without even logging in to Facebook or having an account.

        If I happen to be online I can p
      • I always see conference calls as something private, like a closed meeting.

        I suppose there are certain guidelines on specific channels that can be used to make information public - and whether Facebook is an appropriate channel is part of the issue here. The other part is whether or not the actual information is "material" for investors.

    • I think the "problem" is that not "everything" was disclosed to "investors." Kind of like a car dealer telling you that a certain car gets 35 M.P.G. but not telling you that it has a 1.5L 4-cylinder engine. That the dealer didn't tell you about the engine may slant your decision regarding the car and its 35 M.P.G. performance. Or for the more vilified version, a car ad describing a "red" interior but not explaining that the color is derived from blood stains of a murder victim. I'm not claiming the SEC
    • I think they meant to swing it as being news from people will use to base their investment decisions on.

      Seems you are not allowed to make straight BS free statements about the factual use of your services by your customers. You have to make sure and layer it in corp BS to the point that only professional analysts can figure out what you're saying.

  • I'm still baffled why anyone would post anything meaningful about themselves on Facebook. How many kids have gotten themselves busted for posting pictures of stuff they shouldn't be doing. Or adults for that matter. Just how attention starved are people these days? I would have thought the CEO of a fairly large company would be smarter than this. Hell, I would have guessed that someone in that position would have a staff of marketers specifically to do this for them.
    • There is a difference between posting somthing bad/negative/criminal, like underage drinking; and a company wanting to promote some random interesting fact about itself.

  • Sure sounds public to me.

    • by debrain ( 29228 )

      Sure sounds public to me.

      Me too. However maybe the SEC is trying to make a point? Is it a slippery slope - can we easily and objectively determine when a post to facebook friends not public? 200k people? 20k people? 2k? 200?

      While this instance is fairly far out towards "public" on the public-private spectrum, this may be an attempt by the SEC to establish boundaries about what sort of behaviour it considers appropriate for the CEOs of large and publicly traded corporations.

  • by burningcpu ( 1234256 ) on Thursday December 06, 2012 @09:50PM (#42211521)

    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. While possible, I think this statement should have led to some raised eyebrows.

    • Unless the numbers aren't based on actual hours worth of video streamed, but something more crude, such as "use started to stream video that is 2 hours long, that counts as 2 hours." In which case, it's extremely easy to imagine the average user opening the stream for 34 hours worth of video a month. I probably do twice that, myself.

    • Thats barely more than 1 hour per day.... I think you are bad at conclusions.
      • Thats barely more than 1 hour per day.... I think you are bad at conclusions.
        That depends. Does the average Netflix user watch more than 1 hour of video per day? I suppose it is possible, but I sure don't.
        • Approximate length of a movie: 90-120 minutes (1.5-2 hours)
          Length of a Series Episode: 40-45 minutes (0.67-0.75 hours)

          Two movies and three to four episodes a week is sufficient as an average to hit that number.

    • by O('_')O_Bush ( 1162487 ) on Thursday December 06, 2012 @10:10PM (#42211701)
      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.
    • I think those number are quite plausible.

      That's only an hour per day per account. Consider that accounts can be tied to multiple devices, and streamed from those devices simultaneously. That means accounts can be shared between more than one user quite effectively. Every household I know of that uses Netflix has a single account tied to multiple devices, with different people watching shows independently.

      Additionally, the average American watches 2.8 hours of TV a day [bls.gov]. That means that even if each a

    • by girlintraining ( 1395911 ) on Thursday December 06, 2012 @10:22PM (#42211779)

      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.

    • The average American watches 34 hours of television *per week*. It is entirely plausible that Netflix has replaced a little over 1/4 of television viewing for its customers. I'm surprised it's not more, actually.
    • 34 hours a month is under 1.5 hours a day. Two episodes of Sons of Anarchy, or watching Robocop for the 26th time? That's doable without much strain. Hell, I could watch double that just while doing my ironing.
    • Personally? I use Netflix Streaming instead of a traditional cable subscription, and easily watch an hour a day of content. Sometimes I just put a series I know on and stream things in the background while I'm painting or doing layout work, and on long days like that I could easily rack up 9-10 hours of video content.

      Heck, 1.15 hours a day? That's an episode of Walking dead and an episode of IT Crowd, or a single short movie. After work me and my partner typically eat dinner, then put on something interesti

  • by ZeroSerenity ( 923363 ) <gormac05NO@SPAMyahoo.com> on Thursday December 06, 2012 @09:51PM (#42211527) Homepage Journal
    ...and the banks are walking? Seriously. Priorities people!
    • by future assassin ( 639396 ) on Thursday December 06, 2012 @10:01PM (#42211623)

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

      • No doubt about it. They just signed an exclusive contract with Disney for their film catalog streaming rights.

        That must have drained every drop of cash, even the hooker and blow fund for lobbyists.

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

      I take the reason for this outrage is that you've never mastered starting breakfast and then getting dressed and brushing your teeth while it cooked. The SEC, being an organization of thousands, is capable of multitasking. Investigations take months, and involve a lot of delays while paperwork is gathered, experts are called to review and document their findings, etc. All of that careful auditing and documentation takes time... and if you rush it, you risk making a mistake that the lawyers can use to get t

  • by JRHelgeson ( 576325 ) on Thursday December 06, 2012 @10:02PM (#42211625) Homepage Journal

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

    • Re: (Score:2, Informative)

      by Anonymous Coward

      You don't have to speculate. Political contributions -- at least to groups affiliated with candidates and parties -- are a matter of public record.

      As it happens, Reed Hastings donated a lot of money, all of it to Democrats. So, either the Republicans are behind this despite not having control of the White House, or your theory should have been researched a little more carefully.

  • by Anonymous Coward on Thursday December 06, 2012 @10:09PM (#42211697)

    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.

  • This relates to Regulation FD (for "Full Disclosure"). Basically, you can't release information that could be material to investors (i.e. potentially affect their decision to buy/hold/sell your stock) without making it available to all investors. This rule was written because, in the past, companies would have informal conversations with institutional investors and analysts and give them information that would better inform their investing decisions before that information was "publically" released. Any
  • by seifried ( 12921 ) on Thursday December 06, 2012 @11:44PM (#42212259) Homepage

    I work for [redacted] which is why I won't say anything about [redacted] or especially anything about the [redacted] incident that [redacted] 17,000 people and caused the entire town of [redacted] to go bald and [redacted] at 3 in the morning.

    Which is why anyone with an ounce of sense doesn't talk about their company (especially the higher up you go in the management chain). And especially never put it in writing. Duh.

  • How much did Hastings have to pay for all 200,000 followers to see the post? Don't only like 10% of your followers see the post unless you pay?

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