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Summary:

Netflix CEO Reed Hastings issued an apology to members Sunday night, while also providing some insight into how and why the company badly mishandled communications in light of a pricing change announced earlier this summer. He also announced the rebranding of Netflix’s DVD-by-mail business as “Qwikster.”

Reed Hastings

Netflix CEO Reed Hastings issued an apology to members on the company’s blog Sunday night, while also providing some insight into how and why the company badly mishandled communications in light of a pricing change announced earlier this summer.

“I messed up,” Hastings began. “I owe everyone an explanation.”

From there, Hastings went on to detail the reasons for Netflix’s communication — or lack thereof — with the community that had embraced the service, and through great word-of-mouth, had driven massive subscriber growth over the last few years. That lack of communication has made some reconsider their allegiances to the service, and will lead to a subscriber decline in the third quarter. Noting that the company feared moving too slowly in its transition from a DVD-by-mail service to one that focused primarily on streaming, Hastings acknowledged that the company had “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. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.”

So Hastings fessed up that what’s really behind the change in its service plan is the move to rebrand its DVD-by-mail service “Qwikster,” rolling it out from the Netflix brand and creating a whole new website for the service. According to Hastings, each website will be focused on just one thing — whether it be streaming or DVDs — and each will have separate billing and ratings systems for users.

The move wasn’t necessarily expected, but it makes sense, as Netflix already separated the services and created a separate business unit for the DVD-by-mail business. Ensuring that each operates independently could make Netflix (the streaming company) more nimble, while letting Qwikster manage the winding down of the DVD business gracefully. Managing DVD-by-mail under a separate brand also gives Netflix some additional flexibility if it ever chooses to spin out, or sell, the Qwikster assets to someone else.

All in all, the hope, Hastings writes, is to rebuild the trust that has been lost over the past two months as it navigated the transition:

“Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.”

  1. Brahma Narayanan Sunday, September 18, 2011

    “Qwikster” sounds like the name of the sacrificial lamb, on it’s way to near term slaughter – which is sad. I am a DVD subscriber because though better than anything in the market, Netflix streaming is nothing near comprehensive. DVD mailing is very important to the netflix experience because without the “longtail” (even if it is 1 DVD in 6 months that I rent), netflix is just an advanced version of hulu plus.

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  2. I saw this coming when they split the pricing in two plans. Next stop will probably be selling the DVD company off in a year or so.

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    1. Perhaps to Direct Brans Inc.?

      http://www.bookspan.com/

      All the past book and record clubs are now under one owner and this death spiral is about the same.

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    2. marcus jacksonq Monday, September 19, 2011

      Jim, I also saw this coming and was half tempted to send a message to Reed Hastings myself! While selling the DVD company off in a few years is viable because of increased techology with internet streaming and hdtv’s, I think Netflix should try to impose their will on the market by providing the following services at the lowest possible price of $9-10.99/service:

      1. dvd by mail
      2. instant queue (assuming they can work out new licensing agreements – aka DO WHATEVER IT TAKES TO GET STARZ/SPARTACUS BACK)
      3. Videos games

      No other service would be able to compete with Netlfix and they could essentially create a monopoly that would run all of their current competitors out of the market! Let’s face it, the business Netlfix is in is a extraordinarily tough one, and there is only room for one company! The lowest cost provider with the highest level of service will succeed and everyone else will fail! Netflix may have lost a significant amount of customers, but the fact remains they are still the best deal out there. Netflix can strengthen their position by improving their instant queue, making dvd’s available earlier through qwickster, and providing video games at a low cost. What company on earth could compete with that?

      Actually, the suits brought against Netflix in 2009 ( to my earliest knowledge) are starting to make sense! Netflix IS trying to create a monopoly so buy buy buy!!!!!!

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      1. If it becomes a monopoly they will be forced to break it up.

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  3. I could care less, I canceled my Netflix account because of the price change. I saw value in the DVD and streaming bundle. I’m not paying for two separate services. There are so many streaming options these days too with hbo, cinemax, tbs, TNT, CBS, NBC, I can live without the one DVD at a time.

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  4. Don’t people want the best picture possible with their expensive, awesome tv’s? Wouldn’t that line of thinking imply that physical media has a lot of life left?

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    1. Apparently a lot of people don’t care so much about video quality. I do, yet I prefer the convenience of online. So, I use Amazon’s HD video downloads exclusively now. With FIOS, I need to wait about 15 minutes before starting the movie. All services that immediately stream (including Amazon’s) just don’t cut it, quality-wise. That should change in 3-4 years, though.

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  5. The next step for streaming will be multi tiered pricing plans, where Starz and other streaming options will cost extra, over and above the “Basic” fee as is done in cable TV. I understand this is already being pushed for by Starz in their negotiations with Netflix.

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  6. Quikster=Classic coke. Speaking of classic, this is a non-apology apology. This guy needs to listen to his communications team. Well, it was fun while it lasted.

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  7. Read between the line and Hasting’s fear of great companies failing at new things. Eventually Qwikster will be a separate entity. That way if one company fails it won’t bring down the other. You can tell which one Hastings cares about – the on that retains the Netflix name.

    http://cordcutterguide.com/

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    1. Hastings is sorry for his past actions. Sorry that he was not able to pull the recent “ambush” of his customers off without losing significant money in the process. Another bait and switch maneuver – gone wrong (for him.)

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  8. Although netflix was a great thing to have I had it not only a year before the 50% price jump. I feel it was a good thing for Reed Hastings to show his apology to the customers although there was no adjustment in the plan price. I feel this is why thousands of companies through out the US has folded up is due to GREED and sometimes it not just the companies fault it is our govenments fault also. FEES ON FEES AND TAXES UPON TAXES and companies have no choice but to raise there rates. Then again there is a peak on which us as the customers want to pay for a service before we say no more and discontinue the service. So i guess it is back to on demand and redbox a few times a month for me. If prices continue to raise I feel netflix will not be around for much longer.

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  9. Back to ondemand and red box for me 50% jump and not even been a customer for a year “NO THANKS” this is why thousands of companies fold up is due to greed not only at the fingers tips of the companies it also has to due with the government fees to “FEES ON TOP OF FEES AND TAXES ON TOP OF TAXES” and companies have no choice but to raise there rates to stay on top. Although there is a peak on what the customers will pay for a certain service and that was my peak. I feel if netflix continues to raise there prices they will not be around for much longer.

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  10. If they get *many* more titles in streaming and make the picture quality better than mud (looks terrible on a 55″ Samsung LED), I’ll consider resubscribing.

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