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Netflix CEO Criticized for Earnings Video Emulating Buffett (1)

July 09, 2013

Netflix CEO Raises Hackles With Earnings Video Emulating Buffett

Reed Hastings, president and CEO of Netflix Inc., speaks during a luncheon at the Canadian Club of Toronto on Feb. 3, 2011. Photographer: Norm Betts/Bloomberg

Netflix Inc. (NFLX:US) Chief Executive Officer Reed Hastings, who drew regulatory scrutiny with a Facebook post on usage gains, is raising hackles again with plans for a moderated videocast instead of a quarterly earnings call.

Hastings and Chief Financial Officer David Wells will discuss second-quarter results from the company’s website after markets close on July 22 with Richard Greenfield, an analyst at BTIG LLC, and Julia Boorstin, a reporter for CNBC, Los Gatos, California-based Netflix said yesterday in a statement. They’ll choose from questions submitted in advance.

“What we’re doing is taking advantage of technology and putting it together with moderators we think will lead a lively Q&A,” Jonathan Friedland, a Netflix spokesman, said in an interview. “Our desire is to make this more informative, more interesting and more valuable.”

The change may invite scrutiny because it “raises the appearance that a sell-side analyst and a reporter will gain access to financial information ahead of others,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles who has a sell rating on Netflix shares.

“I’m not going to submit my questions in advance to a competitor or member of the press and let them screen them to determine whether they should be aired,” Pachter said in an interview. “I know this is Reed being progressive and trying to trail-blaze, but I think this is going to stifle the conversation instead of making it more dynamic.”

Buffett Model

Netflix is modeling the video chat based on the format for annual meetings at Berkshire Hathaway Inc. (A:US), where analysts and journalists pose questions to Chairman and Chief Executive Officer Warren Buffett, Friedland said.

The company asked four people to host, two journalists and two analysts, according to Friedland. One person declined, citing company policy, and another was unavailable, he said. The moderators will incorporate as many questions as time permits, according to Netflix.

“Does Netflix want to put on an entertaining reality show or hold an earnings call?” Erik Gordon, director of the Zell Entrepreneurship and Law Program at the University of Michigan, asked in an e-mail. “Alienating analysts in order to entertain sightseers may not be Reed’s best idea.”

Greenfield, who recommends (NFLX:US) buying Netflix shares, has said the company is poised to grow significantly, thanks to its strategy of financing original programming. Boorstin has interviewed Hastings several times for CNBC.

‘No Ducking’

The format will require Netflix executives to take follow-up questions on sensitive subjects and will let viewers see their expressions, Greenfield said today.

“There’s no avoiding or ducking,” Greenfield said. “This should work toward the investors’ benefit because it seems very forward-thinking.”

Boorstin declined to comment in an e-mail.

The U.S. Securities and Exchange Commission in April said Hastings and Netflix wouldn’t face sanctions for announcing total monthly viewing hours on his Facebook page even though the company didn’t report the information in a public filing.

Companies can use social media outlets such as Facebook Inc. and Twitter Inc. to announce key information so long as investors have been told where to look, the agency said.

Netflix rose 6.1 percent to $247.38 at the close in New York. The stock has more than doubled this year and is the top performer in the Standard & Poor’s 500 Index (SPX) for 2013.

“Having an analyst play a central role in the dissemination of an earnings release is highly unusual,” said Paul Sweeney, media analyst for Bloomberg Industries. “It is a great opportunity for Rich, who is an excellent analyst, but it suggests that he is receiving preferential treatment relative to other sell-side analysts and investors.”

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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