April 11 (Bloomberg) -- Netflix Inc., the subscription video-streaming service, said it may use Facebook and Twitter to release material information now that U.S. regulators have cleared the practice.
The Los Gatos, California-based company listed the social-media services operated by Facebook Inc. and Twitter Inc. as possible outlets for news in a regulatory filing yesterday. Netflix said it will continue to make financial announcements on its website, in filings and in press releases.
The move furthers Chief Executive Officer Reed Hastings’ role in legitimizing the use of social media to disseminate financial information. Last week, the U.S. Securities and Exchange Commission ended an investigation of Hastings and the company, clearing them for his Facebook posts that regulators deemed material. The new guidelines clear companies to use Facebook and Twitter as long as investors are notified first.
“While the SEC exercised restraint here, in the future, it appears that the use of social media to communicate material, non-public information, without prior and appropriate notice to the public, may run afoul” of fair-disclosure rules, lawyers for Kaye, Scholer LLP wrote in an April 3 report.
Netflix rose 2.9 percent to $170.84 at 10:12 a.m. in New York. Before today’s trading, the stock had gained 79 percent so far this year.
In its filing, the company said it may release material information on its Facebook or Twitter feeds, Hastings’ Facebook page or on the Netflix Blog and Netflix Tech Blog.
Hastings, 52, stirred controversy over SEC disclosure rules when he wrote in a July 3 post on Facebook that viewing on Netflix’s streaming service had “exceeded 1 billion hours for the first time” in June. Hastings serves as a director at Facebook.
In December, Netflix and Hastings received notices indicating the SEC staff planned to take enforcement action over the posting.
“I wasn’t setting out to set an example, I was sharing something to these 200,000 people,” Hastings said in a January interview at Bloomberg’s New York headquarters. “I’m not going to back down and say it’s inappropriate. I think it’s perfectly fine. Sometimes you’re just the example that triggers the debate.”
This month, the SEC reversed course, dropping any enforcement action and issuing guidance letting companies use social media sites to communicate. The guidance came as part of a report detailing the investigation into Netflix and Hastings.
“We encourage investors, the media, and others interested in our company to review the information we post on the U.S. social media channels,” Netflix said in yesterday’s filing.
The new guidelines have generated controversy. Business Wire, the unit of Warren Buffett’s Berkshire Hathaway Inc. that distributes press releases, said last week that the SEC is hurting investors by allowing the increased use of social media sites for posting financial information.
Guidance from the SEC “poses a disservice to the investment community, threatening increased fragmentation of price-sensitive information,” Business Wire said in the April 4 statement. The stance also raises “privacy concerns as users are required to register to gain access to material news, security risks that may adversely affect market stability.”
The SEC hasn’t taken into account mechanics that make it difficult to filter Facebook or Twitter feeds to isolate posts by companies from others, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. That will require investors to monitor an avalanche of unrelated material in case Netflix releases news, he said.
“The SEC made a mistake,” said Pachter, who has an underperform rating on the shares, the equivalent to a sell. “This is going to backfire on them, and a prudent company wouldn’t consider Facebook or Twitter as their only means of public dissemination of material information.”
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