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John Sciacca Writes...

Features, Reviews and a Blog by John Sciacca

Random Thoughts (Blog)

Random Thoughts (Blog)

Netflix's Latest Flick-up

Posted on September 19, 2011 at 1:25 PM

I woke up this morning to find a message from Reed Hastings, co-founder and CEO of Netflix, in my in box. I’m guessing that many of you received the same e-mail. And while the subject line of the message was “An Explanation and Some Reflections” and was meant to address their previousl little e-mail missive, and while the letter started off like an apology, it really just seemed like CEO Reed Hastings was taking another chance to issue some Netflix mountain-top decree. Oh, and make what feels like another GIANT frickin’ blunder in running the company.

His letter is below. My comments are interspersed in italics.


Dear John,

I messed up. I owe you an explanation.

Yeah. You messed up. Except, your explanation today is frankly too little, too lame, and too late. I’ve already ditched your streaming plan. AND cut back my monthly discs from 4 to 3. So, now instead of getting $25 a month from me, you’ll only be getting $19. You’re plan change actually caused something that you NEVER want people to do; it had me re-examine my bill and my spending habits. I was satisfied to just sit back and let your monthly charges roll in. But when you unceremoniously jacked up my bill, it caused me – and thousands of other users – to start examining my account with you and I realized that, yeah, I probably can cut back. More money for me, less for you.

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. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

And it only took you two months and like 10,000+ angry comment posts on your blog page and losing tons of subscribers and millions of dollars of stock value and tons of negative press to realize this? Wow. I’ve got to say this makes me question the sincerity of your apology.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

Netflix streaming has become virtually ubiquitous; available in almost every connected device – TV, Blu-ray, iPhone/Touch/Pad -- on the market. And you’re biggest fear is that it wouldn’t succeed? It isn’t like you just launched this and were hoping that it would work. And the last part kind of feels like a non-apology apology. "Look, I'm sorry I did it, but I'm not changing it and I would have done it all over again if I had it to do all over. I just maybe would have told you about it first. Or maybe not. Like, it had to be done. Like ripping off a band-aid."

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

Maintaining compatibility? I thought they were complementary and worked to augment each other. Want to watch in better quality with better sound and get all the special features, then get the disc. Want to browse through a pathetically limited offering of titles that you probably had no interest in seeing in the first place with picture quality that often looks like VHS-grade? Then you have streaming.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

You’re WHAT?! Changing the name of the company and service that everyone identifies with your company? Wow! Maybe this is why I’ll never be a CEO, because if someone would have recommended that idea to me, I’d have said, “Change our name? A, you’re an idiot and B, you’re fired.” I wonder why Coke hasn’t tried this when they come out with a new flavor. “We’re gonna rename our primary brand ‘Bubbly Brown Sugar Water.' We chose that name because it refers to the nature of the beverage. And there is no more 'coke' in it.” Or maybe now that Jobs is gone they’ll rename Apple “Compute-ster” or something equally uncool. You know what is lamer than the idea of changing your company’s name? The name you actually chose. “Qwikster”?

Really? That is the best you could come up with? Because that is just really, REALLY gay. And when I say that your new name is gay, I don’t mean anything by it. I only mean that it is just totally, super gay. It is like the Midas of gayness: everything that name touches becomes gay. How about something -- ANYTHING -- that retained some semblance of the original, like, I don't know, Qwikflix or maybe Discflix. Wow. In 30 seconds of thinking I came up with something TOTALLY better. But, the actual challenge would be coming up with a name that is worse. Love how you alienated and tossed away 10-plus years of brand recognition and awareness in one quick pen stroke. That's pretty much marketing 101.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the and websites will not be integrated.

Not integrated? Wow! That’s even MORE the awesome! So I can maintain two completely separate and UNequal movie queues. And have two separate sites to browse! Maybe now people will notice was a limited array of choices there are for streaming. But you added videogames. If I want to pay more. Great. Don't bother telling me where to sign up.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the website is up and ready.

You’ll excuse me if I totally don’t believe you at all here. You’ve told me “no pricing changes” before. Like way back when when you promised to grandfather us original members in and keep our original plans and pricing. But, you know, once you break one little promise, it’s so easy to make and break other ones.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Apology not accepted. Once Red Box gets a bigger selection of Blu-ray discs, I’ll probably leave you like a fat girl at prom. Nothing personal, right? I mean, you’ve clearly demonstrated that you’re relationship with your clients is just business.

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.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

Well, Reed, I’ll just post my comment here, thanks. Oh, and as little PS of my own, here’s a chart of your stock price recently.

That part well your shareprice fell off the cliff back in July? Yeah, that was your last memo. And that bungee-jump with no springback today? Well, I'm guessing that you’re little memo must have gone over like a ton of bricks, cause I see you’re down another 2.6% as I write this. Sure that’ll make for an awesome-funtime next board meeting. Of course, I'd just blame it on the guy that decided to split the companies and come up with the new lame-ass name. Surely that wasn't your idea...

Categories: September 2011, Movies, Rants