Netflix Faces Class-Action Lawsuit for Misleading Investors About Subscriber Growth

Legal troubles continue to mount for Netflix as it faces another class-action lawsuit. This time, Netflix is ​​in hot water for allegedly misleading investors by exaggerating its business growth. Last month, Netflix released its quarterly reports, and with them came some startling revelations. The largest streaming service in the world lost 200,000 subscribers in the first three months of 2022.

While the loss was mainly due to the streamer shutting shop in Russia, Netflix had previously forecasted that it would add 2.5 million new subscribers in the quarter, but it fell short of achieving that goal, adding only 500,000 customers during the period. Another 2 million users are expected to leave the service in the next quarter.

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Netflix also announced that over 100 million households worldwide are sharing passwords, and the competition from other streaming services is getting stiffer by the day. Soon after this, Netflix’s shares dropped by 35% within a day, wiping out around $50 billion of the company’s market value.

Netflix is ​​now being sued for misleading shareholders by claiming that it was growing steadily when, in reality, the opposite was happening. Law firm Glancy Prongay & Murray LLP has filed a class-action lawsuit on behalf of a Texas-based investor. Here’s what the lawsuit (via Businesswire) says:

“The complaint filed in this class action alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that Netflix was exhibiting slower acquisition growth due to, among other things, account sharing by customers and increased competition from other streaming services; (2) that the Company was experiencing difficulties retaining customers; (3) that, as a result of the foregoing, the Company was losing subscribers on a net basis; (4) that, as a result, the Company’s financial results were being adversely affected; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially false and/or misleading and/or lacked a reasonable basis.”

Related: Netflix Announces New Price Hike, Becomes Most Expensive Streaming Service

Netflix is ​​Facing Another Class Action Lawsuit in Russia

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In March, Netflix abruptly suspended its operations in Russia after the country invaded Ukraine. While this was a welcome move, especially considering that Russia required Netflix to air 20 propaganda channels on its platform, the streamer suffered heavy losses. Furthermore, the Russian users who paid in advance were also affected by Netflix’s decision to shut shop in the country.

A class action was filed against Netflix, accusing it of violating the Russian Federation’s Civil Code and Consumer Rights Laws. The plaintiffs argue that Netflix “entered into a public contract with subscribers that does not provide for the possibility of unilateral refusal to fulfill obligations.” They are demanding around $730,000 in compensation from Netflix.

Netflix was once a powerhouse in the streaming industry. But due to rising subscription costs, frequent cancellations of beloved TV shows, and other services like Disney+, HBO Max, and Amazon Prime offering better content at more affordable prices, users are leaving Netflix on an exponentially large scale. Then there is also the issue of password sharing that has plagued the streamer for years. Netflix is ​​now planning to adopt radical measures to combat account sharing and customer loss. And apparently, they include introducing ads and cutting down on the budget of its IPs. It remains to be seen how its user base reacts to these changes.

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Mudit Chhikara
(254 Articles Published)

Mudit Chhikara is a news writer at MovieWeb. He holds a bachelor’s degree in electronics, but being a lifelong cinephile, Mudit decided to write about movies for a living.

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