Netflix looks to Facebook to rebuild customer base and faces legislative opposition.

It was as rough third quarter for Netflix. After the price change and Qwikster debacle, they lost about 800,000 customers. Where could they find millions of people to make up for the hit to its customer base? Facebook of course! Unfortunately, they’ve been trying for awhile, but it’s not as simple as you’d think.

In 1988, the video rental record of Supreme Court nominee Robert Bork was published by a particularly zealous journalist. Lucky for Bork, there weren’t any taboo VHS tapes exchanged between him and the local Blockbuster, but the thought of such an invasion prompted Bork to act. The Video Privacy Protection Act (VPPA) was passed, which prohibited video providers to share which titles their customers watched. Spring forward to 2011. The ambiguously worded legislation might actually make it illegal for Netflix to implement their Facebook app in the United States (although it’s working quite well in other countries).

The Netflix Facebook app syncs users Netflix streams with their News Feed. When a Facebook user is logged into Netflix and watches the latest documentary about pygmy horses, that activity shows up on their Facebook News Feed. The goal is for friends who aren’t Netflix subscribers to get interested, click through the News Feed story to Netflix, and sign up. Currently, a version of the app is only available for use by Facebook employees.

This kind of advertising and app construction is possible with Facebook’s platform called Open Graph. It’s relatively new, only being debuted in September at Facebook’s occasionally annual developer’s conference (it began in 2007, but skipped 2009 and isn’t always in September so . . . it’s usually annual). One prevalent example of Open Graph in action is Spotify’s app. The ability to see what you’re friends are doing other places online or on their computers is all thanks to Open Graph. Spotify gained 1.5 million new paying subscribers this year and they attribute a chunk of them to Facebook “word of mouth.” Netflix is hoping to have the same kind of success, if they can wade through the legal trouble.

Fortunately for Netflix, Bob Goodlatte (R-VA) has sponsored a revision of the bill that would allow Netflix users an option to opt-in to sharing their Netflix activity (or even just recommendations) with friends on Facebook. The language of the bill is intended to show that the option to share the information or not preserves Bork’s 1988 original concern with privacy and the integrity of the original law, while making provisions for the differences between media in the 80s and the new social media in the 2010s. The VPPA revision bill has passed through the House of Representatives, and has yet to be approved by the Senate.

Despite the price change hubbub, Netflix is doing well in its spot as king of watching mainstream TV and movies online. One recent poll reported that viewers spend twice as much time on Netflix, rather than Hulu. Although, the primary content on both websites should be considered before taking that headline as the definitive say on which service is doing better or worse. It’s plausible that the majority of Netflix users go to the site to watch movies, or multiple episodes of a television series, while the majority of Hulu users go to the site to watch the one episode of the show they missed the previous night. Time spent on each site doesn’t seem like a fair benchmark.

Thankfully, another more indicative poll of which content provider is top dog was conducted as well. Citi Survey asked about 10,000 viewers where they went to watch online content. In May, Netflix had twenty percent of the viewers while Hulu was only one percent behind. As of this month, Netflix has jumped to twenty-seven percent and Hulu has fallen to fifteen percent. It would be hard to imagine that the VPPA revision wouldn’t pass, in which case, prepare now for a heavy influx to your News Feed in the near future.