Will This Bill Help Netflix Double Its User Base?

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With the passage of House Resolution 6671, a piece of legislation designed to amend the Video Privacy Protection Act of 1988, Netflix (NASDAQ:NFLX) may finally be allowed to integrate its video and instant queue data with Facebook’s (NASDAQ:FB) popular Open Graph content-sharing platform.

Of the 45 countries where Netflix is available, the United States is the only nation that does not allow users to share the movies they watch via social networks.

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Why is this legislation important for Netflix?

Facebook’s Open Graph is a platform that enables users to “tell stories” about their lives through the applications they use. As Facebook stated on its developers page, “It provides developers with the opportunity to deeply integrate their app into the core Facebook experience, which enables distribution and growth.” The social network controls more than a quarter of the Internet’s referral traffic and accounts for approximately one-sixth of the Internet usage in the United States.

While other video services, including Sony (NYSE:SNE) and Universal’s Vevo, have benefited from the integration, current legislation has prevented Netflix users in the U.S. from sharing their video-rental history online. But on Tuesday, the House of Representatives voted to update the original bill, which was enacted to prevent the “wrongful disclosure of video tape rental or sale records.” Now written consent can be obtained through the Internet, allowing Netflix to disclose customers’ history with their permission.

“Today’s technology and the ever-changing consumer marketplace demand an update to the antiquated VPPA,” said the bill’s sponsor, Republican Congressman Bob Goodlatte, in a statement. “Over the past two decades, video distribution and the way consumers view video content has changed dramatically.

A similar bill, passed by the House of Representatives last December, never made it out of Congress. However, according to AllThingsD, this bill’s passage “shows that the company’s lobbying effort, designed to tweak the 1988 “Bork Law” that prohibits disclosing movie-rental information, has gotten some traction.”

CHEAT SHEET Analysis: Will this legislation be a positive catalyst for Netflix’s stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Netflix’s profitability depends on attracting and maintaining customers. The amended version of the Video Privacy Protection Act will allow the streaming video provider to promote its service using popular social networks, including Facebook. According to statistics distributed by the social network, Vevo saw a 200 percent increase in daily sign-ups when the service implemented Facebook-only registrations. If Netflix experiences even a fraction of Vevo’s gains after boarding the Facebook train, it could be looking at dramatically increased revenue in the not-too-distant future.

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