Netflix Nixes $1 Million Contest SequelNetflix Nixes $1 Million Contest Sequel

Faced with a privacy lawsuit and questions from federal regulators, Netflix has canceled the sequel to a contest that awarded $1 million to a team of engineers who significantly improved the company's movie recommendation engine.

The DVD and streaming movie rental company canceled Netflix Prize 2 in settling a lawsuit filed on behalf of plaintiffs claiming that the sequel would jeopardize the privacy of personal information of Netflix members. In addition, the Federal Trade Commission had questioned the company about how the contest would affect members' privacy.

Netflix claims its 12 million members comprise "the world's largest subscription service" for DVDs and streaming movie and TV content.

"We have reached an understanding with the FTC and have settled the lawsuit with plaintiffs," Neil Hunt, chief product officer for Netflix, said Friday in the company's blog. "The resolution to both matters involves certain parameters for how we use Netflix data in any future research programs."

Netflix did not provide details of the "parameters," but said as a result of the settlement it decided not to hold the Netflix Prize sequel.

The company in September 2009 awarded a $1 million grand prize to a team of seven engineers, statisticians, and researchers from Austria, Canada, Israel, and the United States. The winners were announced three years after Netflix launched the contest.

The sequel was set to award prizes to the team that made the most progress in improving the Netflix recommendation engine after six months and 18 months. Despite canceling the contest, Hunt said the company planned to "continue to explore ways to collaborate with the research community and improve our recommendations system."