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Netflix Settles for Less

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Netflix (Nasdaq: NFLX  ) didn't earn as much as you think last quarter.

The video service provider revised its fourth-quarter results lower over the weekend. Investors shouldn't panic, though you wouldn't know that from yesterday's nearly 5% slide on the news.

The $9 million hit -- dropping Netflix's quarterly profit during the holiday quarter from $0.73 a share to $0.64 a share -- stems from a settlement related to the Video Privacy Protection Act that the company has been lobbying to overturn.

In a nutshell, Netflix is being punished for keeping subscriber data on movies that they watched and rated for a long time after they quit the service. No one is accusing the flick flicker of doing bad things with this information. It's not unleashing the marketing hounds on anyone silly enough to rent Gigli or give Jersey Girl five stars. Netflix simply keeps the data around in case these former subscribers decide to one day renew their accounts. Netflix's enviable recommendations engine stems from those data points.

Back in September, Netflix threw its weight behind House bill H.R. 2471 under the assumption that the Video Privacy Protection Act was keeping subscribers in this country from sharing their Netflix viewing on Facebook. Netflix was able to offer this feature throughout Canada, Latin America, and the Caribbean. The U.S. was the lone holdout.

"If you want the choice to share with your friends, please email Congress to urge them to pass this modernizing legislation," Michael Drobac, Netflix's director of Government Relations, wrote in the official Netflix blog at the time.

Yes, Virginia. Netflix has a Government Relations director.

Obviously it wasn't just the lack of Facebook sharing that was fueling Netflix's interest here. Avoiding nasty settlements -- like the one marking down last year's holiday quarter -- is also at the heart of the company's rare legal push.

So where does this leave Netflix? Yesterday's decline was overdone. Who cares about a small one-time settlement? Analysts know to look beyond these one-time items.

There are certainly challenges against Netflix's model. Last week found both Redbox parent Coinstar (Nasdaq: CSTR  ) and (Nasdaq: AMZN  ) announcing new digital moves. Redbox finally revealed a digital strategy. Amazon added to its digital catalog. However, both of those events were baked into Netflix's shares last week.

Friday night's settlement wasn't all that unsettling.


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Motley Fool co-founder David Gardner has been a fan of Netflix as a disruptor for nearly a decade, but there's a new Rule-Breaking mutlibagger that he's getting excited about these days. Learn more in a free report that you can check out now.

The Motley Fool owns shares of Motley Fool newsletter services have recommended buying shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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