A federal judge this week dismissed a shareholder lawsuit brought against Netflix more than a year ago for allegedly concealing rising costs to inflate its share price, Reuters reported Thursday.
The class-action suit, filed by the City of Royal Oak Retirement System in California district court in January 2012, alleged that Netflix “issued materially false and misleading statements regarding [its] business practices and its contracts with content providers. “Specifically, defendants concealed negative trends in Netflix’s business,” the plaintiffs claimed.
The suit drew attention to Netflix pricing changes and attempted to draw a connection between the company’s alleged financial misbehavior and the sale of stock by Netflix CEO Reed Hastings and others. The plaintiffs claimed that Netflix raised prices without keeping shareholders in the loop when it faced the expiration of contracts with content providers that would be expensive for the company to renew.
But U.S. District Judge Samuel Conti said Wednesday that the plaintiffs “failed to show that Netflix materially misled them about its accounting, its pricing trends, the relative profitability of its streaming and DVD businesses, and its dealings with U.S. securities regulators,” Reuters reported.
Judge Conti “also said Hastings did not materially mislead investors in a conference call on Dec. 8, 2010, when he said Netflix would benefit from a ‘virtuous cycle’ where it could add subscribers and streaming content while lessening its DVD-by-mail costs,” according to the news service.
The suit came in the wake of missteps by Netflix a few years ago in separating its DVD rental and content streaming businesses via a two-tiered pricing structure, as well as exploring a spin-off of its traditional DVD-by-mail operation, moves that resulted in a backlash among users and as many as 800,000 lost subscriptions by some estimates.
Netflix later admitted that its decision in July 2011 to separate its streaming service from a DVD rental operation that would be renamed Qwikster was made hastily and the company eventually reversed course on the plan.
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