Netflix settlement approved

Subscribers get one free month of upgraded service

By Jennifer Netherby -- Video Business, 5/1/2006

MAY 1 | A San Francisco Superior Court judge gave final approval to Netflix’s settlement in a class-action suit that charged the company failed to keep its promise of one-day deliveries and unlimited rentals.

Netflix admitted no wrongdoing in the settlement but has agreed to offer subscribers one free month of upgraded service under terms of the deal. Former members who qualify will get one free month of Netflix’s three-movies-out rental service.

Netflix also will pay $1.3 million to the class-action attorneys who filed the suit and an additional $60,000 to attorneys who filed complaints against the original settlement agreement announced last year.

The company, which has been awaiting court approval since presenting its revised settlement in February, plans to start notifying customers about the settlement offer.

Netflix originally agreed to offer one month of upgraded service to members, but subscribers would have had to opt out of the upgraded service after the free month or face being charged the higher rate. The deal drew complaints from the Federal Trade Commission and more than 400 subscribers, leading Netflix and class-action attorneys to rework the terms in February (VB, 2-22).

Under the final approved deal, subscribers will automatically be opted out of the upgraded service plan after their free month is up.

The lawsuit also forced Netflix to change its terms of service in early 2005 to inform users that rental priority is given to lighter renters.

Judge Thomas Mellon gave final approval of the settlement deal Friday after cutting attorneys’ fees, which had originally been $2.5 million.

Netflix has estimated it would pay $8.65 million to settle the suit, more than double the $4 million the company said the original settlement would have cost.