Netflix Inc. (
is planning to introduce "social features" for its domestic
subscribers after the United States Congress passed a recent
bill, which will allow it to share customer rental data on social
Although Netflix did not provide any further details
(currently nothing is available on the company website), a
company spokesperson told news website Talking Points Memo
("TPM") that they plan to introduce the service in 2013.
The bill removes restrictions under the Video Privacy
Protection Act of 1988 that prevented companies from sharing
rental histories of customer video. Although many states such as
Connecticut, Maryland, California, Delaware, Iowa, Louisiana, New
York, Rhode Island and Michigan have enacted separate laws to
provide greater protection, Video Privacy Protection Act of 1988
has been the strongest protection for consumer privacy.
The Act protects consumer privacy against a specific form data
collection. The Act prevented disclosure of personally
identifiable rental records of "pre-recorded video cassette tapes
or similar audio visual material". However, the new Video Privacy
Protection Amendments Act of 2012 allows companies such as
Netflix to share video preferences of consenting customers
through social media. It also protects consumers by not only
asking companies to obtain their consent in writing (Internet
forms are also allowed) but also allowing them to withdraw their
consent any time.
Netflix has been lobbying against the restriction for a long
time. The law prevented it from offering the social sharing
service in the US, which it was already offering in Canada and
Latin America. The amended Act removes this major obstacle for
Netflix as its US subscribers (approximately 30 million) will now
be able to link their Netflix accounts with their Facebook
accounts. They will also be able to share their favorite movies
with friends over the Internet through the Netflix Facebook app.
We believe that this service will boost Netflix's domestic
subscriber base going forward.
However, we believe that Netflix will not be the sole gainer
from the newly amended Act. Netflix competitors such as Hulu will
also benefit from the new rules as it already began offering
Facebook integration to its subscriber's way back in 2011. Hulu
is currently facing a case under the old law in California, which
we believe it will settle as the new Act comes into force.
In such a scenario, we believe that Netflix's superior content
will be the ultimate deciding factor in the ongoing battle for
online supremacy. Netflix's new and exclusive content offerings
to its subscribers are the company's biggest USP compared to its
closest peers, Hulu,HBO and
However, the company continues to see cost escalation due to
higher license and renewal fees. Netflix needs to pay $5.0
billion for streaming content obligations, out of which $2.1
billion is to be paid within the next 12 months. We believe that
these huge payment obligations would weigh on the stock going
Thus, we have a Neutral recommendation on Netflix over the
long term. Currently, Netflix has a Zacks #3 Rank (Hold).
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