Hacking NetFlix

Netflix Pays $9 Million Settlement in Video Privacy Case

The Washington Post reports that Netflix paid a $9 million settlement in a class action video privacy lawsuit. Netlfix has adjusted Q4 net income as a result of the settlement.

A lawsuit on behalf of Virginia residents Jeff Milans and Peter Comstock alleged Netflix had been breaking a 24-year-old law by retaining records of the DVDs and Internet video that its subscribers watched for up to two years after they cancelled their plans. The complaint, filed in San Francisco federal court, cited the Video Privacy Protection Act, which was passed in 1988 to prevent video rental services from sharing information about what their current and former customers have been watching.

The class-action lawsuit asserted Netflix violated a section of the law requiring personally identifiable information to be destroyed within a year “from the date that the information is no longer necessary for the purpose for which it was collected.”

Retaining former customers’ viewing records allows Netflix to restore their old video queues and make better recommendations if they reactivate their subscriptions.

As usual, Netflix denied any wrongdoing and the lawyers will get most of the money.

Thanks to Thomas for sending this in.

Netflix Letter to Investors, Q & A Transcript, & Investor Reaction

Netflix posted a letter to investors (PDF), and Seeking Alpha posted a transcript of the Q4 Q & A session. The market reacted well to the news and forecast, and Netflix stock jumped back into the $120 range.

What do you think of the news?

Netflix Ends Q4 with 24.4 Million Subscribers

Netflix Q4 results:

• Netflix ended Q4 with $876 million in revenue, and $41 million in income after taxes.
• 610,000 new subscribers were added in Q4.
• 21.67 million streaming subscribers in the U.S. and 1.9 million internationally.
• DVD subscribers declined to 11.2 million, and Netflix ended the quarter with 24.4 million total subscribers.
• Netflix ended the quarter with $798 million in cash and equivalents. 

Q1 Guidance:

• 22.8 to 23.6 million streaming subscribers, $496 to $511 millon in revenue.
• 2.5 to 3.1 million international streaming subscribers, $38 to $44 million in revenue (loss of $118 to $108 million).
• 9.4 to 10.0 million DVD subscribers, $308 to $322 million in revenue.
• Global loss $27 to $9 million.

Some interesting tidbits from the Q4 report:

• Netflix will get The Adventures of Tin TIn, Hugo, and Rango in 2012 as part of the Epix deal, and Thor, Transformers 3, Captain America, Super 8, Immortals and Footloose from other deals.
• The remaining Starz titles will be removed at the end of February, but they only account for about 2% of viewing.
• Netflix customers are streaming about 30 hours per month on average.

Update: From the Netflix investor Q&A session:

• Netflix is doubling spending on streaming content over last year.
• Netflix is not bidding on current seasons of any TV shows.
• Hastings described TV viewing on Netflix as "binge" viewing of older seasons of shows.
• Hastings believes that offering new releases on a pay per view basis would dilute the brand and be a negative.
• Piracy in markets impacts the pricing of content, as does competition.
• Netflix has some 3D Blu-ray titles, and is considering 3D streaming titles.
• Hastings says that they have no plans to offer video games now.
• The profit contribution of a streaming customer is about double that of a DVD customer, so Netflix would prefer to add streaming customers.
• About 8.4 million subscribers use both DVD and streaming, and that number is declining.
• Smart TVs are Netflix's fastest growing device category. 

Netflix Faces A Class Action Lawsuit on Behalf of Institutional Investor

Robbins, Geller, Rudman & Dowd, LLP have filed a class action lawsuit against Netflix on behalf of an institutional investor. 

The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company's business practices and its contracts with content providers. As a result of defendants' false statements, Netflix's stock traded at artificially inflated prices during the Class Period, reaching a high of almost $300 per share on July 13, 2011. While Netflix stock was inflated (partially by Netflix buying back its own stock), Company insiders were selling 388,661 shares of their own Netflix stock for proceeds of $90.2 million.

On September 15, 2011, Netflix updated its third quarter 2011 guidance and revealed that it had lost a million subscribers due to its recently announced price increases becoming effective. On this news, Netflix stock fell nearly $40 per share to close at just under $170 per share. On September 19, 2011, the Company announced that, in an effort to offset skyrocketing costs and rapidly defecting customers, the Company would begin charging separately for its two services and had raised prices as much as 60%. Netflix stock dropped to $130 per share on this news. Then, on October 24, 2011, Netflix issued its third quarter 2011 shareholder letter, which reported a net loss of 810,000 U.S. subscribers, translating into a cumulative loss of 5.5 million subscribers. The subsequently filed Form 10-Q revealed that Netflix's obligations for content over the coming years had skyrocketed to $3.5 billion, with $2.8 billion due within three years. These disclosures caused Netflix stock to collapse from $118.84 per share on October 24, 2011 to $80.86 per share on October 27, 2011, a 32% decline in three days and a 73% decline from the stock's Class Period high.

Thanks to FearNo1, Marshall, and everyone else that sent this in.

Netflix to Announce Q4 2011 Results on January 25th, 2012

Netflix will announce Q4 2011 results and issue a letter to shareholders on January 25th at 1:05 PST. At 3pm PST on the 25th Netflix will host a Question and Answer conference call, which will be broadcast live at http://ir.netflix.com. Anyone can listen to the Q&A session, which should be very interesting this time.

Netflix CEO Loses Half of Stock Options Allowance

Bloomberg reports that the Netflix has cut CEO Reed Hastings stock options by half for 2012.

Netflix, the online and mail- order video service predicting losses for next year, cut the annual stock-option allowance for Chief Executive Officer Reed Hastings by half to $1.5 million.

Hastings will receive a salary of $500,000 for 2012, unchanged from this year, according to a regulatory filing today. His annual stock option allowance for 2011 was $3 million, according to a filing a year ago.

Is Netflix Under Investigation by the SEC?

Rocco Pendola on Seeking Alpha wonders what's behind the alleged SEC investigation of Netflix. Pendola got a "No Comment on this" from Netflix, and he wonders if this is about reporting of churn numbers or something more.

Of course, there's a chance that this is all this morning's report is about. However, Netflix's "no comment" leaves open the possibility that it's about something more. Given the myriad issues that surround this company's balance sheet, Is It Live or Is It Memorex conference calls, corporate communications or lack thereof, public discourse regarding shorts, options compensation, misguided stock buybacks and generally broken business model, nothing would surprise me.

Either way, I'm always baffled as to why the media and Wall Street picks up on one story at a particular time, but not on a similar, more specific story at another time. When Brown went public with explicit details on the SEC churn investigation in September, I was one of the few - maybe even the only - media members to follow up. Today's story basically says nothing precise other than there is some sort of inquiry and it makes repeated headlines while dinging the stock. Go figure.

Netflix Raises $400 Million to "Strengthen the Balance Sheet"

Netflix announced that they have raised $400 million in stock and convertible bonds, selling half in stock to funds managed by T. Rowe Price and the other half in convertible bonds to Technology Crossover Ventures.

A Netflix spokesperson told The Wall Street Journal that "...the company has no immediate plans to use the money it is raising, and will park the money to strengthen the company’s balance sheet." The WSJ also noted that Netflix has approximately $3.5 billion in licensing commitments over the next few years, and is still making new licensing deals.

Upcoming Netflix Investor Events

Netflix announced that they will be participating in two upcoming investor events:

Credit Suisse 2011 Technology Conference
Tuesday, November 29, 2011
Scottsdale, AZ
9:30 a.m. Pacific Time / 12:30 p.m. Eastern Time
Presenter: David Wells, CFO

UBS 39th Annual Global Media and Communications Conference
Tuesday, December 6, 2011
New York, NY
12:30 p.m. Pacific Time / 3:30 p.m. Eastern Time
Presenter: Reed Hastings, CEO

Both events should be interesting given the recent developments, and anyone can listen in on the webcasts at http://ir.netflix.com. 

WSJ's Jenkins Thinks Netfix Isn't Doomed

Holman W. Jenkins from The Wall Street Journal takes a look at the recent problems at Netflix, Netflix Isn't Doomed.

The hidden lesson of Netflix's fall from grace is that content markets will remain fragmented. In the future, you'll still need a search engine and a credit card, and you still won't find what you're looking for. In such a world, there's no reason Netflix can't survive and prosper with a streaming proposition that amounts to "all the content that $8 per month will get you."

In such a world, it will become clear that Netflix's great innovation was not the discovery that there's a market for streamed content (which surprised nobody). Netflix's great innovation was a price point—a bunch of choices for less than the price of a movie ticket. One strength of this business model is that others with TV ambitions (Apple, Amazon, Google, HBO, the cablers) won't feel a need to challenge it directly. They'll do better to make their own niches and charge a price that rewards them for being different.

via Neil Hunt.