Netflix Apologizes (sort of), Explains and Announces

In character with Netflix's sporadic behavior and epic announcements on the down low, Netflix has changed its mind (again). There will be no Qwikster. There will be no more price changes (but the cat is already out of the bag...). The CEO Reed says that they listened to customer and chose not to break off the DVD service from streaming. This is hilarious considering the company failed to listen its customers in regard to the price change. If the company has budged even just a little bit on this (say by offering a discount when you have both DVD & streaming) then the company stocks wouldn't be in the tank.

In any case, feel free to continue reading. While the info past this section is old news, I am sure you will enjoy my analysis of the situation.

...an interesting email in my inbox. It appears that less than a month after the "Big " price change at Netflix, the company has felt it necessary to send out an email that I can only assume is to every customer. After the huge backlash from the separation of the DVD and Streaming services, this is an interesting development. Here are exerts of the email as follows.

The letter was addressed to my by first name and the author, who is the CEO Reed Hastings, stated that he messed up. He also said.

"It is clear from the feedback over the past two months that many members [fell Netflix] lacked respect and humility in the way we announced the separation of DVD and streaming [as well as] the price changes. That was certainly not our intent, and I offer my sincere apology."

He then explained

"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." He gave examples like how well AOL did with dial-up internet but didn't do so well with high-speed internet or how well Borders did with bricks and mortar bookstores but how both failed to move forward with changing technologies and economic times. He then stated how Netflix moved quickly into streaming but that he realizes now that he and the company should have explained why they made the price increase and separated the services. He also stated that it wouldn't have changed the price increase, but still. This part sounded a bit like closing the barn door after the horse is out.

So here is a break down of why they did what they did according to the letter.

1) The DVD and streaming services were really two different animals.

2) The market is evolving to the point that the services needed to diverge or both would die.

3) The streaming service needed dedicated support and improvement which I can only assume meant more revenue coming from it and pushed towards it so that it could get better.

4) In a whiny, round about sort of way it sounds like he is saying both services were to costly to keep going at the same price prior to the price increase.

He then states the following, "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."

So now qwikster.com (Does that shout DVD service to you?) is the DVD mail order service that Netflix was founded on while streaming remains under the name Netflix. According to Reed, it will still be the "same website and DVD service that everyone is used to." But at the same time it won't be. You see, now Qwikster will provide video game rentals (Sound like gamefly anyone?) and more Bluray options (something me and most of the people I know STILL don't care about). Then of course Reed makes the blanket promise of other improvements... nice. The "negative" he states is that Netflix.com & Qwikster.com will not be "integrated". This means no ordering a DVD if it is not availible on streaming. Seperate logins, seperate beds, seperate rooms. Apparently Netflix is divorcing its long time love for a younger hipper business model. Interesting consider that the model prior to this was racking in the cash while still being up-to-date. This idea that simultaneously providing DVD's and streaming is somehow not being adaptive is rather strange considering the number of people who loved it. Are you saying a majority of your users are out of touch with technology Mr Reed?

He then says, "There are no pricing changes (we’re done with that!)." That is rich! Of course your done with that! The price change has happened. Now you are playing the shell game and acting like we are some sort of mark that is stupid enough to realize that a name change is going to make things all better. All in all, the price is still the same if you want DVD's and streaming, but now we the customer have to log into two different sites rather than one so your company can try to recover face.

He then says, "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.
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."

Well, I still see a behavior of disrespect Mr Reed. I read some good and compelling reasons for why you made the change, but rather than doing something smart like saying, "Well, we have the individual plans priced higher, but if you combine we will knock off $2." You give us a song and dance similar to a spurned boyfriend trying to explain why he got caught making out with your best friend. After all, it isn't their fault. They couldn't help themselves.

As you can see, Netflix is making a big change. After the customer out rage over the 60%+ price hike and the recent drop in subscriptions it seems that the company is trying to put out the fire that has already burned several million of their subscription base.

Of course, there are other implications to the DVD & streaming service split. The name change to Qwikster is a foolish move. The Netflix name is established. It is like changing Apple's name to Orange because of a divergence within the company (like the making of the iPod, iPhone or iPad). Such a change may have a positive impact but I personally think not.

As it is, I have been a streaming only customer, so I am not really affected by this "BIG" change. I intend to stick with the streaming only until something better comes along. Once it does though, so long Netflix. Maybe I may write them a break up letter and send it to Mr. Reed when that day comes. I may just include a copy of his letter as well. I am interested to see what you all think though, so feel free to participate in the poll below. All answers are anonymous.

If you want to read more from Netflix, there is a link below to the Netflix blog.

Since this announcement, a couple things have happened. First, it is obvious that Netflix did not do their homework on whether the name qwikster was available on the social media platforms such as Twitter. Now a college kid has Netflix... ah... I mean Qwikster over a barrel. He is working on getting a load of money for the right to use the name.

Of course this sounds kind of familiar. For a business that is based on consumer popularity, the company has no idea what it's life blood is. Despite the massive customer outcry over the price hike, the company made no concessions or revisions to its plan. Now the company has dropped in stock value by over 40% and is still dropping as of today (Sept. 20, 2011).

Add to this the fact that Netflix has failed to renew with Starz and so is loosing the licencing to a large portion of high profile and high demand movies and shows are lost. The further we go, the more I see Netflix loosing its huge lead to some young streaming service if they do not make a 180 quick! Sad really. When the mighty fall, it is almost tragic. Almost. Pride really does come before the fall.