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Netflix
The DVD King's Fall from Grace
On How Not to Ingratiate Yourself to Your Customers

Netflix logoAs a recent article in the San Francisco Chronicle reminds us, last year at this time when Nextflix founder Reed Hastings graced the cover of Fortune magazine, he and his company were flying high. In July, the company’s stock reached its zenith at $304.79. Changes in consumer habits, however, were becoming a concern. How to deal with the transition from DVD viewing to online streaming was the concern. To that point, customers were able to add the streaming feature to their home delivery service for only $2.00. But it was apparently becoming obvious that in order to meet the growing demand for streaming, and to stay profitable, something had to change.

What Netflix did about it caused a backlash which the company may feel for years to come.

On July 12, HJ’s own Yo Snyder posted a brief news report about the plan, which divided the DVD plan and streaming, effectively raising the price for both 60%. While many of us Nexflix subscribers understood, reaction in general, as reflected on the Netflix Blog, was very negative. Customers were not happy.

By mid-September, customer reaction had helped push the stock price to under $150, and it seemed to be in free fall. But what the CEO did next did not exactly help. On September 18, Hastings issued an apology to its customers, followed by an announcement that the company was being divided into two parts with the DVD mailing portion of the business now to be called Qwikster. (See the Netflix Blog entry An Explanation and Some Reflections.) Here is my reaction, which I posted on Facebook soon after. It begins with a quote from Hastings’ “explanation.”

“Actions speak louder than words. But words help people to understand actions.” The problem is, Mr. Hastings, neither your words nor actions are making much sense right now. When the separate pricing came out, I decided to accept it. I understand you must cover your costs. But what you have done now makes absolutely no sense at all. How is further alienating your best customers by requiring them to use two separate websites understandable? Your back-handed apology certainly doesn’t help.

The division of the company furthered the frustration of their customers. And Wall Street certainly wasn’t impressed by how the matter was being handled. By October 7, the stock had further deteriorated to $117.21, helping prompt Netflix’s next move. On Monday, October 10, an email was sent out to customers which included this information:

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.
This means no change: one website, one account, one password…in other words, no Qwikster.
While the July price change was necessary, we are now done with price changes.

But it was too little, too late. Netflix had already lost nearly a million customers, and by October 25, the stock price had set a new twelve-month low of $77.37. The price has since rebounded somewhat, closing Friday at just above $90, but the company has a long way to go to regain the stellar reputation it once had.

But Netflix, I’m sure, will survive. Which is a good thing for me since I have decided to keep them. We use their streaming service here at the Sommer house nearly every day. I am currently enjoying watching the original Star Trek series after having finished Star Trek: Enterprise this past week. I hope to have a review up on Hollywood Jesus’ new eMedia Streaming category later today. Be looking for it.



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