Netflix’s Abuse of the SEC

Posted by on April 23rd, 2013

First, CEO Reed Hastings discloses material information on Facebook. Then he gets hit with a Wells Notice from the SEC alleging he violated Regulation Fair Disclosure. Then he is exonerated on April 2 and the SEC throws the IR industry into a tizzy by stating that social media is an acceptable means for public companies to communicate material news. Then, a week later, Netflix files a Form 8-K stating how it intends to disclose material news and throws into the kitchen sink numerous social media channels through which they will do so including Twitter, Reed Hasting’s Facebook, Netflix’s Tech Blog, its YouTube channel, among many others. Which brings us to Netflix’s quarterly earnings call yesterday; which were stellar. But guess what – they didn’t disclose the news on any of the channels they said they would in their 8-K.

What is going on here? Netflix is laughing at the SEC and in the face of the investor relations industry who take their communications, and particularly Reg FD, seriously.

On Friday last week I sent a follow up letter to SEC Chief Counsel Thomas Kim, who I had previously been in communication with. I expressed my concerns regarding the SEC’s April 2 statement, particularly in light of Netflix’s 8-K filing. Wanting to be constructive, I provided him with some thoughts on how to address this issue and, at the same time, help public companies understand what to do to incorporate social media into their IR communications (especially since the last time the SEC provided guidance on Reg FD was in August of 2008).

My recommendations are as follows:

1) In the company’s annual report filed on Form 10-K with the SEC, every company should clearly indicate all channels through which it intends to disclose material information. This should include traditional newswire services, social media and/or any other communications channels.
2) If a company wishes to change such channels, it shall either do so in its next Form 10-K or through the filing of an amended Form 10-K; but a company must use all communications means specified.
3) All material news announcements must be filed with a Form 8-K with the SEC.
4) All material news announcements must be posted to a company’s investor section of its corporate website. If a company does not have such a section, it must create one, as websites in general are a well-accepted repository for almost all companies’ information.

The world has changed significantly since 2008, especially with respect to technology. Seeing what Netflix did and didn’t do yesterday, hopefully the SEC will take the above into consideration and offer updated guidance on Reg FD, something the IR industry so desperately needs given the SEC’s April 2 statement.