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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.”'"
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?
Holy shit man, 4 pizzas? No wonder we are obese as a nation.
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.
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.
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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.
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.
...and the banks are walking? Seriously. Priorities people!
For those who seek perfection there can be no rest on this side of the grave.
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.
I wonder if the CEO donated to the 'wrong' party this past election. This sounds an awful lot like revenge.
Good security is based upon reality and common sense. Common sense is a function of having common knowledge.
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"?
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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.
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.
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 who can particpate in those conference calls. There is no barrier that limits someone from "liking" a company on Facebook, so the information is just as "public" as any other release of information. If the SEC doesn't realize this, then they are going to have some serious challenges to the ancient ways they regulate public companies.
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.
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 try engage in manipulation that would require 1,000x their capital in actual trades, and the SEC does absolutely nothing. Worthless sacks of shit...
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.
"National Security is the chief cause of national insecurity." - Celine's First Law
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."
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 corporate attorney worth their salt would advise the CEO to release this type of information in a Form 8K (an "informational" filing with the SEC) at the same time a statement like this was made. It clearly speaks to demand and, indirectly, sales revenues for the current and future quarters. Most analysis and investors are interested in that type of metric. If the CEO intended this to be a public release, it was pretty bad judgement to do it via Facebook or a blog. Just another WTF? decision from the Netflix management team...
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.
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.
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 probably see the Facebook posting within a minute of it being posted. Whereas I'd be behind by much longer for press releases etc.
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 to all on an equal basis.
It's not unreasonable for them to say "If you post to Facebook, you have to post it publicly as well." Now, whether or not he gets in trouble is another matter -- it could be that what he was saying didn't really have a business impact, in which case they'll probably slap him on the wrist and say "Don't do that again."
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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.
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