U.S. judge dismisses Netflix shareholder lawsuit over streaming

Wed Aug 21, 2013 12:01pm EDT
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By Jonathan Stempel

(Reuters) - Netflix Inc shareholders failed to persuade a federal judge to order the dominant U.S. video rental and streaming company to pay damages for misleading them about business prospects for its streaming operations.

U.S. District Judge Samuel Conti in San Francisco dismissed a lawsuit by shareholders led by the Arkansas Teacher Retirement System and State-Boston Retirement System on Tuesday, saying they failed to fix shortcomings in an earlier version of the suit he dismissed in February.

He said shareholders did not deserve a third chance to pursue the lawsuit, which began in January 2012, soon after Netflix suffered heavy subscriber losses, and its share price plunge.

"All of plaintiffs' allegations - new and old - depend on the tenuous theory that defendants withheld discrete and accurate financial information about streaming while also touting streaming's profitability," Conti wrote. "The court has not found this to be the case."

Stephen Tountas, a partner at Labaton Sucharow for the plaintiffs, did not immediately respond to requests for comment.

Shareholders accused Netflix of misleading them about pricing trends and the relative profitability of its streaming and DVD businesses, while insiders like Chief Executive Reed Hastings sold millions of dollars in company stock.

Netflix's share price fell 76 percent from early July to late October 2011 as the company lost 800,000 U.S. subscribers, set plans to spin off its DVD business, then quickly abandoned the idea.

Much of the decline stemmed from Hastings' decision to scrap a plan that let subscribers stream movies and receive DVDs for $9.99 per month, and instead offer separate streaming- and DVD-only subscriptions for $7.99 per month each.   Continued...

Netflix's Chief Executive Officer Reed Hastings speaks during an interview with Reuters in Buenos Aires September 7, 2011. REUTERS/Enrique Marcarian