In re Netflix, Inc.

In January 2012, Netflix, Inc. (defendant) publicly announced that Netflix had streamed two billion total hours of content in the fourth quarter of 2011. Netflix’s chief executive officer, Reed Hastings, indicated that Netflix would update its streaming metric when milestones were reached but would not regularly report how many hours of content had been streamed. On July 3, 2012, Hastings posted on his personal Facebook page that Netflix’s monthly streaming had recently exceeded one billion hours for the first time. Hastings had roughly 200,000 Facebook followers, including shareholders, reporters, bloggers, and research analysts. Neither Netflix nor Hastings had previously posted company metrics on Hastings’s Facebook page. Rather, Netflix had always directed people to Netflix’s own Facebook page, Twitter feed, blog, and website for information. Hastings had not received input from Netflix’s legal department, investor-relations department, or chief financial officer prior to posting. Netflix did not make any other public announcements of the streaming milestone. However, Netflix sent Hastings’s post to some reporters, and the post was also picked up by a blog and other news outlets within two hours. The financial markets closed early on July 3, but several mainstream financial-reporting services picked up the story of Hastings’s post after the markets had closed. The Securities and Exchange Commission (SEC) investigated whether Hastings’s post violated SEC Regulation FD and § 13(a) of the Securities Exchange Act of 1934, which prohibit public companies or their representatives from selectively disclosing material, nonpublic information to securities professionals or shareholders before the information is made available to the general public. The SEC had issued guidance in 2008 explaining that a company makes a public disclosure of information when the information is distributed through a recognized channel. Following the investigation, the SEC issued a release clarifying how Regulation FD and the 2008 guidance applied to disclosures made on social media.