Netflix's Email About DVD Price-Fixing Settlement Leaves Customers Confused

Netflix (NSDQ: NFLX) subscribers received a surprise e-mail yesterday saying they were eligible to receive cash or a gift card for a price-fixing scheme. The e-mail left many of them scratching their heads about how and when they would be paid.

The e-mails — here is a sample — are part of an unusual class action that accuses the CEO’s of Netflix and of conspiring over dinner in 2005 to divide up the DVD market. Under the alleged deal, Netflix said it would not sell DVD’s if Wal-Mart (NYSE: WMT) agreed not to rent them.

The lawsuit took a strange twist earlier this year after Wal-Mart agreed to settle the suit but Netflix did not, leading the two would-be conspirators into a legal battle with each other. Netflix has accused the retail giant of using the settlement’s e-mail notification process as an opportunity to lure its customers over to Wal-Mart’s Vudu movie streaming service.

Yesterday’s message was the result of a court order that required Netflix to hand over the e-mail addresses of anyone who paid to rent its DVD’s between 2005 and 2010. The list was given to a third party company who is administering the settlement through the website

Most consumers don’t care about the legal niceties but just want to know: when do get I paid and how much will I get? The answer is sometime next spring and “not much”. Wal-Mart has set aside $27 million to pay for the settlement and lawyers’ fees — the amount you get depends on how many of the 40 million current and former Netflix subscribers sign up for the process (you can do the math.. the amount won’t make you rich, especially if many people sign up).

Consumers disappointed with the pay-out can cheer themselves that there will likely be a second chance to collect when (and if) Netflix gets around to settling the claim. The company is still fighting hammer-and-tongs in California federal court and yesterday filed a series of documents related to an impending jury trial.

Netflix’s decision to go all-out in the litigation seems to be another in a series of executive decisions that have puzzled analysts and driven investors to despair. Class action suits almost always settle once a judge has certified a class (which happened in this case) because the possibility of a trial is fraught with uncertainty and potentially enormous damages. In this case, the plaintiffs are seeking approximately half a billion dollars. There is no way they will obtain anywhere near that amount but it still raises the question of why Netflix didn’t join Wal-Mart in agreeing to pay what, in comparison, is a relatively small figure of $27 million.

Instead of putting the matter behind it, Netflix is courting the hoopla of a jury trial and yet more media attention on its business practices. After a series of disastrous strategic decisions (think pot-smoking Elmos) resulted in its market cap plummeting from $16 billion to $4 billion, the last thing Netflix needs is more distractions.

Lawyers for Netflix and the plaintiffs did not immediately respond to requests for comment.