Netflix CEO Apologizes to Customers, Then Drops Another Bomb

“I messed up. I owe everyone an explanation.” Thus begins a blog post by Reed Hastings, CEO of Netflix, announcing a new change to the company — a change that is almost guaranteed to further irritate an already angry and frustrated customer base.

The change, in a nutshell, is this: In addition to charging separate fees for its streaming and DVD-rental services, Netflix is formalizing the separation of the two businesses. The DVD-rental service is now a separate subsidiary called “Qwikster.” The name “Netflix” will be used for the streaming operation.

“We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service,” Hastings explained in the post, as well as in a video posted to the site.

There will be no price changes — the company already did that, he said, in what was presumably an attempt at levity.

The service will remain the same — and even improve, Hastings maintained. It is adding a video-game rental option to include Wii, PS3 and Xbox 360 games.

Double the Hassle

From a consumer standpoint — at least, for those who use both services — this dollop of good news comes with a price tag: There will be separate websites for each operation.

To his credit, Hastings did acknowledge the disadvantages of the new arrangement. The Qwikster.com and Netflix.com websites will not be integrated, so if a user subscribes to both services, any changes in profile information, billing method, etc., will have be entered twice.

“Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa,” Hastings pointed out.

The mea culpa leading off the post, however, was not an apology for making the decision to change Netflix’s focus to streaming-only. Nor was it an apology for the clumsy setup of the two websites for customers who may want to use both services. Hastings was merely contrite about the way Netflix first introduced the pricing changes leading up to the reorganization.

“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,” Hastings wrote. “That was certainly not our intent, and I offer my sincere apology.”

A 60 Percent Increase

Some two months ago, Netflix abruptly announced it was discontinuing its US$9.99 monthly streaming and DVD-rental plan and replacing it with two plans, $7.99 for streaming-only and $7.99 for one DVD at a time. Together the plans cost $15.98 — a 60 percent increase over the previous combined package.

Users were furious — much more so than Netflix ever expected. In September, it reported that it had lowered its July 25 guidance of 10 million users for its streaming-only plan to 9.8 million. The DVD-only option saw a larger drop, moving from the July 25 guidance of 3 million users to 2.2 million users in the revision.

Another Tone-deaf Move

There’s not much likelihood users will react well to this latest news. Certainly, there is plenty of commentary online to suggest that most don’t like it — and that any goodwill Netflix might have had with its customers has been spent.

“This is one of the dumbest things it could do,” David E. Johnson, CEO of Strategic Vision, told the E-Commerce Times. “I see this move as something manufactured by accounting or legal. The company is showing it has no ear for consumer opinion or public perception.”

It is so clumsy, said Richard Laermer, CEO of RLMpr, that it is probably the company’s way of appeasing Wall Street over the “boneheaded decision” to raise prices during such economic times.

“I was surprised by the ’90s name, too, ” he added, referring to “Qwickster.”

All in all, it was a strange announcement, Dave Matin, SVP of media at Ignited, told the E-Commerce Times. “While I think it makes sense to admit to your customers when you’ve made a mistake, the apology video didn’t seem like the right forum to drop an enormous strategic bombshell about the future of the company. It all seems a little ill-conceived.”

Even the good news that Qwikster will be a more robust service that includes video-game rentals was clouded by the strange format in which the message was delivered, Matin concluded.

Heartfelt Plea

Netflix probably had been hoping for a different reaction.

Hastings’ blog post and video constitute “a very personal and long explanation of why we have done these things,” VP of Corporate Communications Steve Swasey told the E-Commerce Times.

Yes, the explanation was a humble and heartfelt one, Strategic Vision’s Johnson agreed, “but face it — most consumers don’t read CEO blog posts.”

1 Comment

  • Did someone spike Netflix’s coffee?

    I have been a very satisfied customer and evangelist of Netflix for years.

    The pricing change was probably inevitable given the evolution of the industry and the need to devise a new business model in response, but the implementation was beyond absurd. Idiotic comes to mind.

    But the ‘splitting’ of the two services into separate databases requiring customers to ‘belong’ to each makes the price change seem like pure genius in comparison!!!

    Where in marketing class did they suggest making it more difficult for prospects to buy and use your products was a good idea?

    Guess I was absent that day and it wasn’t on the quiz.

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