Netflix Class Action Lawsuit Costs Millions, Pays Pennies

Posted by · November 17, 2011 11:41 am

Hey Netflix subscribers, you’ve got mail.  No, it’s not another apology from CEO Reed Hastings, it’s a notification about a class action lawsuit filed in 2009 by a group of Netflix users who are crying foul on Netflix and Wal-Mart.  The lawsuit charges the two companies with collusion, citing a deal struck by Wal-Mart and Netflix in 2005 in which Wal-Mart agreed to stop its DVDs-by-mail subscription and encourage its customers to subscribe to Netflix and, in return, Netflix agreed to promote Wal-Mart DVD sales.

The subscribers who filed the suit claim that the deal helped both companies dominate their respective markets and caused Netflix to raise its subscription prices.   While a ruling has yet to be made on the case, a California judge certified the lawsuit as class action last year and thus involved all Netflix subscribers in the lawsuit.

Wal-Mart, having deep pockets and less at stake than Netflix, reached a settlement earlier this year and agreed to pay $27.25 million in cash and gift cards.  Most of this money will go to the lawyers, so Netflix subscribers stand to make approximately $1.50 or less should they choose to demand a payout from the Wal-Mart settlement.

Yesterday’s email notified Netflix subscribers of the settlement and gave instructions on how to claim the pennies that they stand to earn or exclude themselves altogether from the lawsuit in case, you know, they choose to sue Netflix individually.

Netflix is still fighting the charges (likely because they stand to lose a whole lot of money if a ruling is not made in their favor) and neither company is willing to admit any fault.  If you’re not a Netflix subscriber, didn’t receive the email or just want to learn more about the lawsuit, you can visit

Personally, I have just one question: What the heck is wrong with Americans these days? The economy is in the crapper. The housing market is on the fritz. People in other countries are dying of hunger or diseases from contaminated drinking water every minute, and we’re worried about a deal that occurred six years ago and may or may not have had a direct effect on the cost of our non-essential Netflix subscription.

But by all means, folks, take your pay out.  And just remember as you’re cashing that fat check: $1.50 is $1.49 more than you deserve.

*Photo courtesy of Thomas Hawk.

  • Jenn,

    First, I am not a lawyer, and I happen to be a fan and subscriber of NetFlix Streaming. But, I’m rather shocked at your trivialization of this issue, but it shows your complete lack of understanding of the matter. Most class action lawsuits leave very little if any in payouts to the plaintiffs. However, their impact on overall markets as well as the ability to block further damages to the class can be substantial.

    Collusion is a serious thing, and while I have not been a supporter of the Occupy movement, this is a clear example of why we should be paying some attention to what they are saying. Netflix and Walmart are two large corporations which decided to not compete in order to prevent other companies from succeeding in the DVD market.

    I’m not sure if you play poker, but I do, and I know that if I were playing in a poker tournament with 5 other people, and two of them had secretly decided to work together, my chance of winning is significantly reduced — if there is a chance at all.

    Fair markets are the foundation of our economy and any manipulation of them can cause millions of people to suffer the consequences. This deal probably won’t make anyone go hungry, but consider that if Netflix wasn’t able to raise their rates on over 20,000,000 subscribers because of Walmart’s competition, over the past 5 years, this may have cost each subscriber about $60.00 or a total of $1.2 BILLION that was not spent on other things in our economy during that period. If gone unchecked, who knows how much it would have ultimately totaled?

    Fortunately, as we move to streaming content there is a vibrant market and Netflix faces many more competitors which will keep the prices lower for consumers. But there are always going to be opportunities for companies to act unethically and collude with others at the detriment of consumers. When acts of this type occur we should stop them in their tracks and discourage others from behaving similarly so that everyone can thrive in a just society.

  • Tim

    Nice response Jeffrey. I saw this on Friday but didn’t have time to reply – and I’m glad I’m not the only one who thinks this article trivialised the issue.

    The bit that surprised me was: “The economy is in the crapper. The housing market is on the fritz. People in other countries are dying of hunger or diseases from contaminated drinking water every minute, and we’re worried about a deal that occurred six years ago and may or may not have had a direct effect on the cost of our non-essential Netflix subscription.”

    So are you saying that bad economic times and the unfortunate reality in other parts of the world can be used as an excuse for unethical or illegal activities?

    Apart from that fact that it should be more about the principle of what is right, than the amount of money any individual may get back; why is it that you say “But by all means, folks, take your pay out. And just remember as you’re cashing that fat check: $1.50 is $1.49 more than you deserve.” ?

    Surely in hard times, any money that the consumer has to pump back in to the economy is a help?
    I don’t know any of the figures, but Jeffrey suggests that it could be $60 per subscriber; if that is correct then surely their $1.50 is $58.50 LESS than they deserve? Although clearly they would never recoup that amount, is it really fair to say that because it is a non-essential subscription and it happened six years ago that these customers deserved to be ripped-off?

    I am not affected by the issue here, but I would have thought that the principle of the case was far more important than an individual payout. This article seems to justify collusion at the expense of the American consumer and I think that invoking very real, but unrelated wider problems to sidestep the issue here is a real cop out.
    How about it companies successfully prosecuted for collusion actually had to go out and spend some of their money to help solve some of the other problems mentioned, either at home or abroad?

    • @Tim
      I should have been clearer at how I arrived at $60.00. It’s a total guess, but the calculation is based on a $1.00/month increase for 60 months.

      Netflix currently has about 23,000,000 subscribers even after losing almost 800,000 in recent months due to price increases. This loss of subscribers provides additional evidence supporting the assertion that collusion was harmful to consumers. Five years ago Netflix had almost no competitors (either direct competition or alternative methods of content delivery) so if they raised their price subscribers had few if any alternates to choose from.

      Today, as the primary method of content delivery shifts to the Internet, companies like Hulu, Amazon, Dish (Blockbuster), and the Cable TV companies are all strong competitors now which will ultimately help to keep pricing fair.

      Contrary to recent events which claim that Netflix raised its prices, the truth is that it really launched streaming as a new, free service, just as Hulu did in order to gain users and when they started charging for it the media called it a price increase — Netflix’ $7.99/month streaming subscription (which is what I have) is highly competitive with Hulu Plus and other streaming services.

  • Jeff and Tim,
    Thank you both for reading the post and providing thoughtful comments. Both of you brought up some very valid points. I certainly was not trying to trivialize the matter of collusion but rather point out that we have much bigger issues to worry about here in America and abroad.

    I appreciate both of you taking the time to provide thoughtful commentary.