Netflix CEO Offers Apology and New Plan for Business
Back in July when Netflix eliminated its single $9.99 monthly subscription plan, which combined DVD and streaming rentals, in favor of two separate $7.99 plans for home and online delivery, a large number of the service’s customers were more than a little put out. That unhappiness was borne out in the company’s most recent financial report, which showed it losing subscribers.
Now comes a mea culpa, of sorts, from Netflix CEO Reed Hastings.
In a statement published on the company blog, Mr. Hastings wrote, "It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes."
Mr. Hastings goes on to explain that he has worried greatly over the past five years over how Netflix would move from its home DVD delivery model to streaming movies and programs online.
"In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. … But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both."
Mr. Hastings goes on to explain that Netflix realized that DVD by mail and streaming were two distinct businesses that needed to be marketed differently so that they could grow independently.
The result of this soul searching is that Netflix is renaming its DVD by mail service "Qwikster." Subscribers will now go to qwikster.com to order DVDs and manage their accounts. Programming that consumers stream online will still be available through Netflix. Mr. Hastings maintains that splitting the two businesses up on different websites will make them "easier to use."
Mr. Hastings also admits some possible shortcomings.
"A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places," he wrote. The same is true of reviews that would need to be reentered separately on both sites.
Mr. Hastings properly concludes that there will be some who will scratch their head over this move. Ultimately, however, he believes the businesses will be improved as a result.
Not all of Netflix/Qwikster customers seem to agree, based on the company’s Facebook page.
Here are two excerpts from comments:
- "The whole reason I got Netflix was for the convenience. You guys are really shooting yourselves in the foot with this. I was willing to deal with the 60 percent price hike, but not this. This is the worst business move I’ve ever seen."
- "Just call it QWITSTER, because if you separate the services, I will quit at least one if not both. Are you out of your minds?"
While there is little argument that streaming is the future of the movie rental business, at least one analyst called the Netflix move "premature" because of the nature of the relationship between the company and the movie studios.
Wedbush Securities analyst Michael Pachter told The Wall Street Journal, "On the DVD side, the studios have zero ability to raise price. On the streaming side, the studios have 100 percent leverage."
- An Explanation and Some Reflections – The Netflix Blog
- Netflix on Facebook – Facebook
- Netflix Compounding Problems – Global Collaborations Inc.
- Netflix CEO Unbowed – The Wall Street Journal
Discussion Questions: What do you make of Netflix’s latest move? What would you suggest it do next?