SEC wrestles with Internet age in Netflix case

Fri Dec 7, 2012 5:51pm EST
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By Aruna Viswanatha and Sarah N. Lynch

WASHINGTON (Reuters) - A U.S. regulatory probe of Netflix Inc over disclosures made on its chief executive's Facebook page could prove an important test of whether a rule designed to prevent leaks to analysts can translate to the social media age.

The movie and TV streaming service revealed on Thursday that it may face action from the Securities and Exchange Commission if the agency determines the comments from CEO Reed Hastings violate a rule that requires information to be disclosed to investors at the same time.

Hastings' Facebook page had more than 200,000 subscribers, including reporters and analysts, when he told them on July 3 that the company had hit 1 billion hours viewed in June.

But the case may not hinge on whether or not his page qualifies as a public dissemination.

Instead, it may come down to two other issues.

One, whether the information was material to investors.

And two, if it was material, whether investors knew that Hastings' Facebook page was a venue to release important company news.

As evidence of materiality, the SEC could point to statements Hastings made earlier in the year highlighting milestones, including hours streamed, as metrics investors should watch.   Continued...

A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011. REUTERS/Robert Galbraith