Netflix Settles on Free Flicks

Netflix this week began contacting thousands of customers who may be
eligible to receive a free one-month upgrade in service under the terms of a
class-action lawsuit.

Members enrolled in a paid membership plan before January 15, 2005, and who
were members on October 19, 2005, are entitled to an upgrade in service
stemming from the suit filed against the online DVD rental service in December 2004.

The class action lawsuit, Frank Chavez vs. Netflix, filed in San Francisco
Superior Court in September 2004, alleged that Netflix failed to provide
“unlimited” DVD rentals and “one day delivery” as promised in its marketing
materials.

In an open letter to members, Netflix denied any wrongdoing or liability,
but said the parties reached a settlement that they “believe is in the best
interests of the company and its subscribers.”

Under terms of the agreement, and depending on customers’ original membership
plans, users of the service could be eligible for a free month of service
or a free upgrade.

Current Netflix members enrolled before January 15, 2005 and who were
members on October 19, 2005, are eligible to receive a free one-month
upgrade in service level.

Former Netflix members enrolled in a paid membership before January 15, 2005
but were not members on October 19, 2005, are eligible to receive a free
one-month Netflix membership with their choice of the one, two or three DVDs
at-a-time unlimited program, the Los Gatos company said.

Netflix has said that the settlement cut third-quarter profit by $3.2
million, or 4 cents a share.

Members have until December 28, 2005, to decide whether to sign up for the
benefit as part of the settlement, exclude themselves from the suit or make
an objection to the settlement in court.

In addition, if the settlement is approved by the Court, Netflix will modify
portions of its Terms of Use. Netflix also will refer to its Terms of Use in
certain advertisements.