After a Federal Trade Commission investigation, and a lawsuit attempting to block the sequel, Netflix' chief product officer Neil Hunt posted a message on the Netflix blog announcing that the second contest had been cancelled.

Netflix had used anonymous movie rental data, pulled from its large database of customer information, and invited contest participants to refine the movie recommendation algorithm using the data. However, researchers at the University of Texas managed to de-anonymize some of the data in the list of 10 million movie rankings by 500 000 customers. They compared rankings and timestamps with public information in the Internet Movie Database.

"We have reached an understanding with the FTC and [have] settled a lawsuit with plaintiffs," Netflix said in a statement. "The resolution to both matters involves certain parameters for how we use Netflix data in any future research programs. In light of all this, we have decided to not pursue the Netflix Prize sequel that we announced on August 6, 2009."

Most of the comments on the company's blog reacted negatively to the move, supporting the idea of a contest. "Trending towards the lowest common denominator just isn't progress," said one angry participant in the discussion. "How about they have to prove that Netflix data is more invasive than data collected by other sites and entities such as grocery stores, banks, restaurants and websites?"