Eros Beats Investor Suit Over Statements About Streaming Platform

ErosNow press conference - H 2015
Courtesy of Eros

When a company touts the number of registered users it has for a tech platform, does it matter how many of those are actually engaging the product? Not in the case of Eros International, an Indian entertainment giant accused by some investors of overstating its assets.

About five years ago, Eros aimed to be more than just a Bollywood producer. The company launched Eros Now, a streaming platform akin to Netflix. The company also acquired an Indian mobile platform called Techzone, which until that point had mainly sold ringtones. Eros then reported in 2015 that its registered users had jumped from 2.9 million to 30 million users. The Techzone acquisition had aided the growth. The problem, according to suing investors, was that the vast majority of those users were unable to access Eros Now's content in "any meaningful way" owing to the limits of broadband internet penetration in India and the technological limitations of WAP [Wireless Application Protocol] browsers.

The lawsuit accused Eros chairman Kishore Lulla of making material misstatements in an attempt to enrich his family. Those suing say that when the truth about the nature of the registered users came out, the company's stock began to tumble.

U.S. District Court Judge Alison Nathan has now granted a motion to dismiss upon the finding that plaintiffs have failed to adequately plead false material misrepresentations.

"The story Plaintiffs tell about these users inability to actually stream movies is quite compelling," she writes. "Unfortunately for them, it is also largely immaterial."

Nathan nods to the plaintiffs' definition of user as "a person who interacts with a system, typically through an interface, to extract some functional benefit" as well as the definition accepted by one court that a user is "a person who has previously been registered with a registration server."

"Nonetheless, this semantic battle is beside the point, as Plaintiff cannot import the world 'meaningful' before 'use' absent some representation on the part of the Defendants about the quality of registrants' use," states the opinion. "Moreover, many users did derive some sort of functional benefit, such as by purchasing a ring tone."

Similarly, Nathan rejects claims directed at statements concerning the films that Eros had made available on its streaming platform. In press releases and securities filings, Eros told investors it was releasing 69 films in 2014 and 65 films in 2015 when, in fact, the company had released one fewer for each of these years. The judge agrees with Eros that the misstatement was immaterial and unimportant. And as far as plaintiffs' further claims about release dates, she writes that "it is no more plausible that these statements were interpreted to mean new films than that they were interpreted to mean newly released on the Eros Now platform."

Here's the full ruling.

Eros, which is reportedly in discussions to sell its library to Netflix, Amazon or Apple, was represented in the case by Kasowitz attorney Michael Bowe.