To Wire, or Not to Wire…That is the Question

In my line of work, a huge part of my role is disseminating material company news to the largest audience possible. (For those not familiar with the term, “material news” is a public company’s news that might affect the value of its securities or influence investors’ decisions). So, when working with these companies, it is absolutely imperative that we, as communications professionals, adhere to the rules of the Securities and Exchange Commission (SEC) to ensure that the company’s investors receive all pertinent information in a timely manner.

Because of this, I have been watching the unfolding Netflix story with great interest.  Not only for what I have viewed as very poor choices in their approach to communicating their surprise subscription fee increase, but most recently, the company’s choice to announce the spin-off of its DVD rental service through somewhat unconventional means.

Beginning Sunday, September 18 with an 1,100 word blog post from Netflix CEO, Reed Hastings, Netflix executed what can only be viewed as a poor attempt at explaining the significant price increase announcement. This initially shocked its subscribers, and resulted in the loss of a large chunk of its customer base.  In the post, Hastings also detailed the splitting off of the DVD rental service into a new company called Qwikster.

By all accounts, this was material news, and per SEC regulations, this should have been broadcast widely, and simultaneously among many outlets. I found it very interesting that Hastings chose not to distribute via wire release, and instead did so via blog entry, a direct email to subscribers, and a YouTube clip.

Though Netflix has historically been known to shun traditional methods of communication, I have to question the approach here given the gravity of the announcement, and how the news had already been received by Netflix’s subscriber base. So while there is nothing wrong with alternative means of distribution, companies seem to be blurring the boundaries between what’s acceptable, and what isn’t.

Certainly, in the new age of social media platforms, consumers and companies alike have assumed the role of the media, reaching an ever-growing base of readers.  Because of this, companies who receive a large number of visitors to their sites or blogs could in essence rely on these not-so-standard approaches to reaching investors.  So, I suppose assuming that the traditional wire service is the only effective means of disseminating material information (and meeting SEC regulations) may be an antiquated and shortsighted view.

All that said, however, I am curious as to whether the alternative approaches in this case were sufficient for the news, or whether Netflix committed a potential SEC violation by not following traditional means of distribution. Also, looking forward, what kind of precedent is this going to set for smaller public companies that might not have the brand recognition of a Netflix, but choose to disseminate material news in this fashion?

My guess is that this will spawn a healthy debate once the dust settles.