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A Netflix No-No, says SEC

A Netflix No-No, says SEC

In what’s become an interesting twist on free speech, the Securities and Exchange Commission is considering taking action against online streaming and DVD rental giant Netflix. The question is – why?

Netflix CEO Reed Hastings took to Facebook this summer and congratulated his employees for their hard work. He made mention of the one billion hours of video that was watched the previous month, setting a new record and marking a milestone for the company that’s taken a lot of hits in recent months. His post was less than 45 words. He released no proprietary information and frankly, his mention of one billion hours didn’t reveal anything either. It’s highly unlikely any of his Facebook followers have any idea as to whether one billion is industry norm for the competition – there’s nothing to mirror that statement to in terms of statistics. But it just might cost him and his company.

Formal Action

Earlier on Thursday, Netflix released a more proper presser and disclosed that the SEC was considering some kind of formal action against both the rental company and Hastings. It’s using the Wells notice as its method. As we learned, the Wells notice is a little used rule formally named the Regulation Fair Disclosure rule, or Reg FD. It states that a company or any of its board members or upper management can release information, provided it’s given at the same time to anyone who is invested. His Facebook profile, by the way, is public. Not only that, but before long, his 200,000 plus followers had already hit the share button, making it even more public.

Let’s face it – you just can’t get any more public than Facebook. The argument could be made that Hastings did a more effective job this way than had the company released any kind of formal announcement. The difference is that with Hastings posting, the average consumer was made aware of the information too and had it been a more formal setting, it’s not likely the media would have reported anything at all.

Still, the agency, has given fair warning that it is considering civil action and/or a cease and desist order. Usually, when a Wells notice is filed, it’s in essence an announcement that charges will likely follow. That said, there are past notices that resulted in nothing at all. It’s hard to tell what, if anything, will happen from this point forward.

Of course, Netflix has struggled in an effort to keep itself front and center in its sector. Consumers made Netflix a hit almost from the moment of its inception. A credit card number, an email and physical address was all it took to become a member. Now that politics and other problems have seeped in, including a rate hike, the company has faced difficult days.

In the meantime, Hastings soon followed up on his first post and said,

We remain optimistic this can be cleared up quickly through the S.E.C.’s review process.

Netflix is keeping mum on an official level and the SEC has no comment either.

The first post, while it made no mention of specifics, money or profits, it did suggest the future was looking good.

When House of Cards and Arrested Development debut, we’ll blow these records away,

he wrote and then made mention of one of the company’s other executive officials,

Keep going, Ted, we need even more!


So why is the SEC so concerned about an otherwise inoculate Facebook message? The Regulation Fair Disclosure was designed to keep information sharing on the up and up; it sought to keep one board member of any company from learning something his counterparts have not yet been made aware of. It’s all about transparency, which makes this even more confusing. Hastings wasn’t trying to hide anything. In fact, his post resulted in a number of bloggers thanking their lucky stars for having found something to post about on that day – and if you’re a blogger, you know how important it is to keep those posts fresh.

These rules have been in place for more than a decade. Now, though, it may be time for some tweaking. The fact is, more Americans are turning to social media for all of the breaking news they need. One need only look to Twitter’s trending hashtags to understand the power of social media. Things have changed. News is delivered differently, reported differently and analyzed differently. Gone are the days when the 6 o’clock news was the only source of reliable information. That’s not to say there’s a lot of questionable news being posted, but social media provides a foundation that allows readers to follow up to verify the accuracy of any so-called breaking news.

We use blogging and social media, including Facebook, to communicate effectively with the public and our members,

Hastings wrote after learning about the potential repercussions.

Did the SEC go too far? Is it time to rethink those laws in an age of technology, Twitter and Facebook?

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