New York: Netflix has successfully had a shareholder lawsuit dismissed on Tuesday, following allegations that the streaming company had downplayed the impact of account sharing on its subscriber growth. The lawsuit, filed by a Texas-based trustee, accused Netflix of misleading investors about the potential consequences of users sharing usernames and passwords with nonpaying members in other households.
The class action suit stemmed from Netflix’s April 2022 announcement, when the company revealed a loss of 200,000 subscribers in the previous quarter, marking the first decline in a decade. Netflix also warned of the possibility of losing an additional 2 million subscribers in the subsequent three months. The loss was attributed to several factors, including account sharing, increased competition, and the shutdown of its service in Russia following the invasion of Ukraine. Following the announcement, Netflix’s shares dropped 35%, erasing more than $54 billion in market value.
U.S. District Judge Jon Tigar, based in Oakland, California, ruled that Netflix’s previous claims—that it was “roughly 60% penetrated” in the United States and Canada, with “a lot of headroom” to grow—were not false or misleading. Tigar determined that these statements referred to paid subscribers and did not imply guaranteed future growth.
Furthermore, Judge Tigar found no evidence that Netflix had hidden any information or made determinations suggesting that account sharing would significantly impede growth. At best, the plaintiff’s allegations only suggested that Netflix had investigated account sharing as one of many factors that could potentially affect subscriber growth.
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The dismissal of the case, which follows a previous dismissal of an earlier version in January, was with prejudice, meaning the plaintiff, Fiyyaz Pirani, trustee of the Imperium Irrevocable Trust, cannot amend or refile the complaint.
The case is Pirani v. Netflix Inc et al, U.S. District Court, Northern District of California, No. 22-02672.
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