## Facts

- In January 2012, Netflix, Inc. publicly announced that it had streamed more than two billion total hours of content in the fourth quarter of 2011.
- Netflix’s CEO, Reed Hastings, described streaming hours as a meaningful measure of user engagement and service scale.
- Hastings stated that Netflix would update the streaming-hours metric when milestones were reached, but would not regularly report streaming-hour totals.
- On July 3, 2012, Hastings posted on his personal Facebook page that Netflix’s monthly streaming had recently exceeded one billion hours for the first time.
- Hastings’s Facebook page had roughly 200,000 followers, including shareholders, reporters, bloggers, and research analysts.
- Before the July 3 post, neither Netflix nor Hastings had used Hastings’s personal Facebook page to disclose company metrics.
- Netflix had directed the public to Netflix’s own Facebook page, Twitter feed, blog, and website for company information.
- Hastings did not seek input from Netflix’s legal department, investor-relations department, or chief financial officer before posting the streaming-hours milestone.
- Netflix did not issue a press release, file a Form 8‑K, or publish the milestone on its usual company channels at the time of the post.
- Netflix sent Hastings’s Facebook post to some reporters, and a blog and other news outlets picked up the post within about two hours.
- The U.S. financial markets closed early on July 3, and several mainstream financial-reporting services reported on the post after the markets had closed.
- The Securities and Exchange Commission investigated whether the Facebook post raised issues under Regulation FD and Exchange Act § 13(a).
- The SEC had previously issued 2008 guidance explaining that, for Regulation FD purposes, information is publicly disclosed when distributed through a “recognized channel” of distribution.
- After the investigation, the SEC issued Release No. 69279 as a § 21(a) Report of Investigation to address how Regulation FD and the 2008 website guidance apply to social-media disclosures.

## Issues

1. Whether a CEO’s disclosure of potentially material, nonpublic company information on a personal Facebook page—without prior notice to investors that the page would be used for company disclosures—can qualify as public disclosure under Regulation FD.
2. How the SEC’s 2008 guidance on company websites informs the analysis of whether social-media platforms and particular accounts function as “recognized channels” for Regulation FD and Exchange Act § 13(a) purposes.

## Decision

- The SEC determined not to pursue an enforcement action against Netflix or Hastings based on the July 3, 2012 Facebook post.
- The SEC issued a § 21(a) Report of Investigation (Exchange Act Release No. 69279) to provide guidance rather than litigate.
- The SEC stated that Regulation FD applies to communications on social media to the same extent as communications through more traditional media.
- The SEC explained that an issuer may use social media to make Regulation FD-compliant public disclosure if investors have been told which specific social-media accounts or pages the issuer will use to disseminate material information.
- The SEC indicated that a one-time disclosure on an executive’s personal social-media page, where investors have not been informed to look for company disclosures, may fail to qualify as dissemination through a recognized distribution channel.

## Legal Principles

- Regulation FD restricts selective disclosure of material, nonpublic information to securities-market professionals and shareholders when the issuer does not also make a required public disclosure.
- For intentional selective disclosures, Regulation FD generally requires simultaneous public dissemination; for non-intentional disclosures, it generally requires prompt public dissemination.
- “Public disclosure” under Regulation FD depends on whether the method used is reasonably designed to reach the securities marketplace broadly and without exclusion.
- The SEC’s 2008 website guidance frames whether a location is a “recognized channel” by looking to market awareness and access, including whether the issuer has identified the channel as a source of important information and whether investors know to monitor it.
- Social-media platforms are assessed under the same general approach used for company websites: the key question is not the technology, but whether the specific account functions as a known distribution source for the issuer’s information.
- Exchange Act § 13(a) and related rules require issuers to comply with periodic reporting and related disclosure obligations; the SEC may evaluate whether an issuer’s disclosure practices meet federal securities-law requirements when material information is released outside established channels.

## Conclusion

In Release No. 69279, the SEC closed its investigation into Netflix and Reed Hastings without bringing an enforcement action, but issued a § 21(a) report stating that Regulation FD applies to social-media disclosures and that social-media posts can satisfy Regulation FD’s public-dissemination requirement only when investors have been informed, in advance, which specific social-media accounts the issuer will use as recognized channels for material company information.


In re Netflix, Inc., Securities Exchange Act Release No. 69279 (2013)