Netflix-Facebook Link Stalls as Franken Favors Bork Law: Tech

U.S. Senator Al Franken has helped stymie a potentially lucrative partnership between Netflix Inc. (NFLX) and Facebook Inc. (FB) in a dispute with roots all the way back to Judge Robert Bork’s Supreme Court nomination.

In 1987, a newspaper published Bork’s video-store rentals during contentious hearings over the nominee. Even though it wasn’t very explosive material -- he’d rented “The Man Who Knew Too Much” -- Congress passed the Video Privacy Protection Act the next year to ensure that never happened again.

Now, Netflix is trying to change the law. A measure backed by the Los Gatos, California-based video provider would let customers give one-time online consent to share the titles of movies they watch. Franken, joined by privacy advocates, is skeptical of allowing blanket permission and said consent should be handled on a case-by-case basis.

“It’s a really good thing that people can easily tell their video company, ‘Sure, go ahead and tell people I watched The Godfather, but no, don’t tell them I watched Yoga for Health: Depression and Gastrointestinal Problems,’” Franken, a Minnesota Democrat, said at a Jan. 31 hearing on the bill.

Netflix is looking to add customers as it faces increasing online video competition from companies including Amazon.com Inc. (AMZN), Hulu LLC, and Verizon Communications Inc. (VZ) Verizon formed a joint venture this month with Coinstar Inc. (CSTR), owner of the Redbox video rental service, to offer a Web streaming service.

A Netflix folder sits next to David Hyman, general counsel with Netflix, during a Senate Judiciary Subcommittee hearing in Washington, on Jan. 31. Photo: Andrew Harrer/Bloomberg Close

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A Netflix folder sits next to David Hyman, general counsel with Netflix, during a Senate Judiciary Subcommittee hearing in Washington, on Jan. 31. Photo: Andrew Harrer/Bloomberg

The partnership with Facebook offers Netflix the promise of access to the social network’s 845 million users and has taken effect in 46 countries where Netflix operates. It has been blocked in the U.S. by the Bork-era law, Netflix said.

Video Competition

Under the agreement, people can connect their accounts on the two services; every time a user streams a movie or TV show on Netflix, the title appears on the user’s Facebook page.

The ability to connect streaming with social activity on Facebook would be a “great way to drive subscriber acquisitions and highlight content that people didn’t even know existed within the service,” Richard Greenfield, a media analyst at BTIG LLC in New York, said in an interview.

Netflix Chief Executive Officer Reed Hastings, a member of Facebook’s board, said in September, when the companies’ deal was announced, that Netflix members in the U.S. wouldn’t be able to share their favorite movies on Facebook because of the “outdated privacy law.”

Netflix boosted its lobbying spending more than six-fold in 2011 from the previous year as it pressed for passage of a bill to clear the way for U.S. implementation of the Facebook deal.

Rental Stores

Facebook joined Netflix along with Google Inc. (GOOG) and IAC/InterActiveCorp. (IACI) in urging U.S. lawmakers to change the Video Privacy Protection Act in an Oct. 6 letter to leaders of the House Judiciary Committee.

The 1988 law was enacted when people watched videocassette tapes from brick-and-mortar rental stores and “many of the technologies consumers use today had not been invented,” the companies wrote in the letter addressed to Representative Lamar Smith, a Texas Republican and the committee’s chairman, and John Conyers of Michigan, the panel’s top Democrat.

The proposed bill “empowers consumers to make decisions about how they wish to share their experience on social networks and content sites such as Netflix, Facebook, and Google,” the companies wrote.

A revision backed by the company won House passage in December in a 303-116 vote. The bill’s momentum slowed at a Senate hearing last month as Senators Franken and Tom Coburn, an Oklahoma Republican, questioned whether the one-time consent favored by Netflix would unravel consumer privacy protections.

Privacy Protection

Franken will use testimony from the Jan. 31 hearing to determine how to revise the 1988 law “to protect the privacy of consumers who use Netflix and other web-based video services,” Alexandra Fetissoff, a spokeswoman for the senator, said in an e-mail, without detailing any plans.

The Senate Judiciary committee has scheduled no further action on the issue, spokeswoman Erica Chabot said in an e-mail.

The fate of the Netflix-backed bill marks a test of the company’s nascent lobbying operation in Washington. Netflix hired Christopher Libertelli, a former lobbyist for Skype Technologies SA and senior legal adviser at the Federal Communications Commission, late last year. Libertelli replaced Michael Drobac, Netflix’s first full-time lobbyist, who was brought on in October 2010.

Lobbying Expenditures

Netflix spent $500,000 on lobbying in 2011, according to U.S. Senate records. The company registered to lobby in late 2010, and spent $80,000 on lobbying that year, the Senate records show.

Facebook filed this month to raise at least $5 billion in the largest Internet initial public offering on record. The company is considering a valuation of $75 billion to $100 billion, people with knowledge of the matter said.

Andrew Noyes, a spokesman for Facebook in Washington, declined to comment on the legislation.

Netflix was up 76 percent this year as of Feb. 17, more than any other company in the Standard & Poor’s 500 Index. (SPX) The video provider forecast improving margins last month, and said it had contained a subscriber revolt over price changes and an aborted plan to split its mail-order and Internet-streaming businesses.

David Hyman, Netflix general counsel, said in an e-mail, “In many ways social media is the new water cooler for consumers and we think it may be a great source for our members to find movies and TV shows they will love.”

Hyman said more than 500,000 Netflix subscribers outside the U.S. have connected their accounts with Facebook to share movies with friends.

“We would like our U.S. members who so want to engage with social media to be able to do the same and am hopeful that the Senate will clear some regulatory underbrush to make this happen,” he said.

To contact the reporter on this story: Eric Engleman in Washington at eengleman1@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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