Shareholder Sues Streaming Giant Netflix Over Subscriber Slip

Netflix is facing a lawsuit as a shareholder of the company is seeking class action status and is accusing the company of not making it clear that subscriber numbers were in peril.

The company recently disclosed drop of just 200,000 users — less than 0.1 percent of its total customer base — which sent shares plunging after Netflix announced quarterly earnings in April.

The company also said it anticipates a much larger drop in the current quarter, of around two million net subscribers.

The lawsuit was filed this week in federal court in San Francisco. It accuses top executives at Netflix of not telling investors that subscriber growth was slowing due to people sharing accounts and competition ramping up in the market.

“Defendants’ positive statements about the company’s business, operations, and prospects were materially false and/or misleading and/or lacked a reasonable basis,” read the suit filed by lawyers at Glancy Prongay & Murray on behalf of the shareholder.

Executives at Netflix said on an earnings call that they are focused on combating the 100 million households who watch Netflix for free thanks to shared passwords.

“When we were growing fast, it wasn’t the high priority to work on,” co-founder Reed Hastings said. “And now we’re working super hard on it.”

Chief operating officer Gregory Peters said Netflix wasn’t trying to shut down sharing, “but we’re going to ask you to pay a bit more to be able to share.”

Earlier this year, Netflix put out word that it is testing charging a fee to subscribers who share their accounts with people who don’t live in the same home.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.