BREAKINGVIEWS-Netflix row opens a Pandora's box on disclosure

Sat Dec 8, 2012 12:42am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK, Dec 7 (Reuters Breakingviews) - A row with Netflix (NFLX.O) has opened a Pandora’s box on disclosure. The Securities and Exchange Commission warned it may sue the online video company and Chief Executive Reed Hastings over a Facebook (FB.O) post he made in July. What he wrote, however, hardly looks material and it reached more people than if he had said it on CNBC. It's a bad test case on the question of investor protection in the age of social media.

The worthy goal of Regulation Fair Disclosure, or FD as it's commonly known, is to prevent companies from favoring certain people with market-moving news. Under the law, enacted about a decade ago to combat a pervasive problem, any information that might affect a company's stock price must be broadly disseminated. Technology has required fresh thinking along the way. For example, the SEC has decided that a corporate website or sponsored blog suffices, assuming the news is displayed prominently and that a press release also accompanies especially significant matters.

The growth of alternative and widely used platforms such as Facebook and Twitter has made it increasingly tricky - and important – to figure out how to apply Reg FD. This Netflix case isn’t a good start.

All Hastings said was that customers had watched a billion hours of streaming content in June, a first. The threshold, at least for investors, is somewhat arbitrary. What's more, the company had already said a few weeks earlier on its own blog it was approaching the milestone. Most importantly, Hastings can get a message to over 200,000 people on Facebook. CNBC, the financial network where CEOs sometimes make news, typically has fewer people watching during any given workday than Hastings has "friends."

Vigilance on the subject of fair disclosure is important for the SEC. Top executives still travel the analyst and investor circuit while more and more of them are tweeting. This Netflix case only makes the agency look behind the social media times.

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CONTEXT NEWS

- Netflix said on Dec. 6 that the company and Chief Executive Reed Hastings had received notice from the Securities and Exchange Commission that the agency could bring a civil action for statements made by Hastings on Facebook on July 1. Hastings wrote that Netflix monthly viewing exceeded 1 billion hours for the first time. The company said the SEC claimed the comment may have violated Regulation Fair Disclosure, which requires companies to disclose material information to all investors in a non-exclusive manner.

- The company said it didn't believe the information was material and that because Hastings had over 200,000 followers on Facebook, the statement was "very public."

- Wells notice announcement: link.reuters.com/kan54t

- Reuters: Netflix says CEO's Facebook post triggered SEC notice [ID:nL1E8N6GRF]

- For previous columns by the author, Reuters customers can click on [CYRAN/]

(Editing by Jeffrey Goldfarb and Martin Langfield)

((robert.cyran@thomsonreuters.com)(Reuters messaging robert.cyran.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS SEC/NETFLIX

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