SEC action against Netflix CEO over Facebook post is completely wrong

The US Securities and Exchange Commission is considering taking action against Netflix and its CEO Reed Hastings because of a Facebook post.

The agency says that the update to Hastings' 200,000+ subscribers where he said "members had enjoyed over 1 billion hours in June" violated the SEC Regulation Fair Disclosure (Reg FD) rule.

The SEC is charged with making securities trading fair and since Netflix is a publicly traded company, the SEC has oversight. RegFD is the SEC rule that says when a company discloses something of material importance (something that might affect the stock price) that the information needs to be sent to everybody at once.

According to the SEC: "Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities—generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information—the issuer must make public disclosure of that information."

The SEC is completely wrong

The issue is not with Netflix. It is with the dinosaurs at the SEC. This is not a stock story. It is a real-time communications story.

The post that Hastings sent out was to his Facebook PUBLIC followers list which currently numbers 245,000 people. Anybody can subscribe to the list and anybody can access the content at any time without subscribing. I do not subscribe and it took me less than five seconds to access it – go to Facebook and type 'Reed Hastings' in the search bar. Bingo.

Any journalist or securities analyst who has any brains at all would be following what Hastings is saying on his public Facebook posts.

Here's the important point -- by posting to Facebook, Hastings is getting the news out fairly to anyone who wants to see it.

The SEC considers press releases to be the acceptable way to comply with RegFD.

Press releases are fine, but in 2012 saying that only press releases qualify for fair disclosure is like saying the only way to watch movies is in a theater. In fact, when I looked for press releases from Netflix it took me much longer than five seconds to find the relevant pages.

Time to re-think fair disclosure

There is no question, based on my extensive previous experiences - 1) working in the real-time news business for a decade; 2) as head of corporate communications for two public companies and 3) as VP marketing for Fair Disclosure Financial Network - that the SEC is wrong.

The SEC needs to develop new rules on what disclosure is in our world of instant communications.

If anyone from the SEC reads this, I'd be happy to come down to Washington and educate you on the new tools of real-time communications. But since this is not a press release, I doubt we'll hear from the lawyers down in D.C.

Comments

[Rj_c]

I am not a fan of Netflix at one point they where charging my savings account for three years for a Netflix subscription I gave as a gift to a friend. Leaving that terrible feeling I have when Netflix gets mention looking a the other side having worked for a big Public Accounting firm I have to agree with you David.

If the information is accesible real time I also think its fair disclosure. Those who might make it feel any other way are probably those who still want to control something either information or the process!

[Joseph Ratliff]

I wonder how many of the investing public pays attention to press releases anymore.

I'm sure some do, but as an investor I would be apt to look where no one else is looking for that information, that "tidbit" that may not be immediately released to the press.

And, yes, this is a real-time situation David... so tying my point to this, I'll bet the savvy investors are already following Reed Hastings' Facebook account, and whatever other account.

The other investors are simply missing out because they aren't paying attention.

The SEC needs to back off in this case, as IMO, they have to consider the actual value of said information (1 billion hours... so what?).

[Nick Sharples]

I hold no interest in Netflix from an investment perspective but I can see the SEC's point of view.

Whilst we would probably all agree that a Facebook public profile is a perfectly valid means of communication to one's followers, it is not one that is yet recognised and approved by the SEC as one of the acceptable routes for transmission of price sensitive information.

Investors have the right to expect that, whatever the rules applied by the SEC, price sensitive information is disclosed to every interested party at the same time, through the same channel(s). To allow otherwise would be to potentially disadvantage some investors over others and would leave the SEC open to a maladministration case.

Is it time for Stock Exchange regulators to consider channels other than press releases? Absolutely! But until they do the existing rules and channels need to be strictly adhered to for the benefit of all.

[Seancarp]

I love how you not only teach people the art of "newsjacking" but you are a student yourself.

The benefit of you doing it is you can also are able to create a nice post/lesson like this one for commentary on the PR and real time marketing aspect of the story.

Nice job. You must feel like Yoda some days, no?

[David Meerman Scott]

Thanks for these interesting comments. Raul - I got into their subscription clutches too and have been paying for a while. Joseph & Raul - I do think this is fair disclosure, but as Nick says, this is not part of the rules now.

Sean - In this blog, my books, and my talks, I try to point out situations where the tools of communications have outpaced conventional marketing & PR techniques or when regulation is behind the times. And I try to do that in real-time when I can. It is quite fun when I can combine those things and newsjack at the same time although in this case I have yet to be quoted by a mainstream publication.

David

[Long Beach PC Expert]

How many of the investing public pays attention to press releases anymore? It it indeed disclosing some factor that can trigger a market concerning the facebook comment. It is more objective and safe to think first before clicking the submit or post botton.