The SEC, Netflix, and The Age of Social Media

Posted on December 7, 2012



In a nutshell, Reed Hastings, Chief Financial Kahuna  and Lord Marshall of Netflix innocently created a post on Facebook, congratulating his team sometime in July. In the post, he mentioned a couple of metrics, specifically that 1 billion hours of video has been made available to subscribers.

Enter the SEC. The Hammer of the Gods is coming hard on an anvil made out of someone’s skull.

Get Ready to Rumble

That is, the SEC is considering suing (possibly the crap out of) Netflix (and Hastings in particular) for what, according to its rules, constitutes selective dissemination of information relevant to shareholders.

According to these rules, well-meaning and with a useful place, all information that might affect shareholders must be publicly and widely available. In the past, companies would do such announcements in through new releases or regulatory findings.

Fine. But what about a post on Facebook, Twitter or LinkedIn. Here things can get murky by a strict interpretation of the laws.

This interweebz thing sucks!

This interweebz thing sucks!

Dude, It’s the Internet

Did Hastings supposedly violated the SEC laws because posts on Facebook are not available to read unless you have an account with it? Or is it because it was not done in typical printed media? How would the law had applied had the post been made on a publicly and widely, no-restrictions medium like Twitter or Reddit?

More interesting, consider the post, written by the CEO of the ONE company that almost de-facto represents the future of digital media, an early 21st century icon. Most ironic, consider that the post was made on Facebook (which has no less than 800 million subscribers, 110 million alone in the US).

Facebook has become so ubiquitous that a person not having a FB account (be it publicly visible or hidden) could be considered a behavioral outlier. How could that be considered “selective release of information”?

By all measures of reachability, such a post made on Facebook is far more widely distributed that one done on the WSJ or a regulatory filing. This is not an understatement. This is a fact that can be measured (and ergo be proven to be true) objectively.

Time to Catch Up

This is another typical case of the law not catching up with technology (or society for that matter.) I highly doubt that Hastings meant ill, nor do I think the SEC is being diabolical (yes, e-conspiracy nuts, you can put your tinfoil hats away.)

It is simply a legality/technology mismatch, one that unfortunately can carry severe consequences.

So kids, what is the lesson of the day?

  1. Note to CEOs – check with your legal team before posting stuff on the interweebz.
  2. The SEC needs to revisit (read, evolve in the name of Darwin) its rules on “selective release of information” in the age of Facebook, Twitter and the social media bestiary.

The SEC must evolve, and CEOs should know better. The internet is a series of dangerous tubes, dangerous tubes I tell’ya.