Netflix: What We've Got Here Is A Failure To Communicate

If there's one movie that should top the queue for Netflix CEO Reed Hastings today, it's Cool Hand Luke. Not because he's managing the company with Paul Newman-like composure--but because he's been explaining away his latest decisions and the company's problems as one simple issue, a failure to communicate.

For it's next act, Netflix is spinning off its DVD business under a new brandname, Qwikster. Yesterday on Netflix's blog, Hastings offered this mea culpa: 

"When Netflix is evolving rapidly...I need to be extra-communicative. This is the key thing I got wrong...In hindsight, I 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. But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both."

But critics are already saying that neither Hastings' actions nor words can make up for the company's past mistakes. Are they right? 

When introducing the company's 60% rate increase back in July--the announcement which sparked this fiasco--Netflix customers' reactions were universally negative. What many found disheartening more than subscription changes themselves was the way Netflix communicated about them: automating the price increase, then framing it as a "terrific value" that offers consumers more "choice."

Subscribers saw right through this corporate boilerplate, leaving nearly 13,000 comments on Netflix's blog, creating a social media nightmare for the company on Twitter and Facebook, and overwhelming Netflix's call center with complaints.

Months later, Netflix has yet to find a better way to explain the changes, even when its CEO is being "extra-communicative," leaving a rational observer to wonder whether there is a way to explain to customers and investors who expect constant growth that Netflix is knowingly sacrificing a portion of its customers in order to survive longterm. In his blog post yesterday, Hastings started the right way: "I messed up," he wrote. "I owe everyone an explanation."

But his explanation quickly got complicated. Because Netflix's DVD-by-mail and streaming services have become such distinct businesses, Hastings says, the company has decided to split them up: Netflix will be the streaming side of the business, while Qwikster will be for DVDs by mail. What does that mean? If you still want to receive those red envelopes in the mail--the ones that say "Netflix" on the front--you'll soon have to head to Qwikster.com, where you'll have a separate queue, a separate rating and reviewing system, and a separate bill on your credit card statement.

"A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated," acknowledges Hastings. "So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa."

That's quite the convoluted offering, especially considering how customers just learned of their new tiered subsciption plans: streaming for $7.99 per month, DVDs by mail for $7.99, both for $15.98, or more depending on the amount of DVDs out at one time. Now Netflix is trying to educate its members about a new, disconnected service, under a different brand name--and telling them to pay for it separately. In other words, Netflix is trying to communicate what it couldn't communicate correctly before--because it was too complicated--by introducing more complications.

I know this firsthand as the son of your-average-not-too-tech-savvy parents. The recent price hike took a bit of time to explain. (Should we switch to DVDs only? Just streaming? Keep both?) I fully expect a call later today from my mom asking, "What's all this Qwikster business about?" My parents--and others in their demographic--are the same consumers who haven't changed how they pay for HBO since Arli$$ was the network's big hit. And in just a couple months Netflix has asked them to learn new aspects of its subscription plans and dramatic changes to its business--all but making the company's offerings the digital equivalent of a menu at the Cheesecake Factory.

"I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly," Hastings wrote. And it's not for lack of trying, as he has taken to the comments section (more than 600 posts have flown up just hours after his post went online) to defend his announcement.

"Seriously, you thought a good idea to make up for miscommunications was to separate the websites and make it more complicated for us to manages our queues? Really?" reads one of the most popular comments on the site, with more than 265 Facebook Likes.

Responds Hastings, "We think the separate websites (a link away from each other) will enable us to improve both faster than if they were single websites." (Only 54 Likes, at last count.)

I wonder when the next mea culpa will come, or if and when it does, will it be on Hasting's personal blog, Netflix's or Qwikster's? 

[Image: Flickr user Matt Reinbold]

Add New Comment

15 Comments

  • Austin Edgington

    There is another issue, which both Netflix and most journalists have both missed, and this is; don't mess with someones entertainment dollar in the middle of a long, nasty recession. People are broke, scared and tired of not having enough money. They can't afford new cars, vacations, college tuition and their mortgages. Screw around with their entertainment funds and you are going get bit. Do it a confusing, silly way and you will lose them. Common sense should tell them - I can get what I want for a buck at a red box in the supermarket. But then the Silicon Valley has more MBAs and spreadsheets than common sense these days.

  • Shane Petty

    The conclusion that I've come to that is not being reported is the Netflix company is being setup to be sold in the short-term. Simple as that. Hastings and many "insiders" sold a lot of stock in the month(s) just prior to the July announcement. Any "technology" company interested in buying Netflix most certainly doesn't want to deal with the physical logistics of a mail-order DVD service. Hastings also recently joined the Facebook Board. If one looks at the situation from this stand point, these seemingly "irrational" decisions make perfect sense. For those in the know, brilliant, for customers and stockholders, one raw deal.

    http://seekingalpha.com/articl...

    http://www.gurufocus.com/news/...

    http://www.businessinsider.com...

  • David Esrati

    The problem is that splitting the service is STUPID. Movie lovers love Netflix because it's a service for movie lovers- now, it's two services. I don't buy Netflix- I buy movies. There is NO difference between streaming movies and dvd movies in our house- is there in yours?
    IDIOTS. They were the ultimate movie lovers service- now- I can get streaming from Apple, Amazon and who knows else. Why destroy a great brand for the beancounters?

  • Nathaniel richmond

    Qwikster aka Netflix is really going to up set
    customers by giving them two bills on top of their price increase. DISH Network customers can now get 3 months free of
    Blockbuster rentals by mail. Blockbuster has over 100,000 titles to choose from
    including games, TV shows, and movies. Working for DISH Network I can tell you
    new DISH Network customers can get 3 moths free of Blockbuster rentals by mail.
    Check this link out http://goo.gl/wuMrN.

  • Andrew Case

    I just got a $829.99 iPad2 for only $103.37 and my mom got a $1499.99 HDTV for only $251.92, they are both coming with USPS tomorrow. I would be an idiot to ever pay full retail prices at places like Walmart or Bestbuy. I sold a 37" HDTV to my boss for $600 that I only paid $78.24 for. I use (Bidsget) . (com)

  • KPR

    15,000 comments on the Netflix blog. 

    ~2 minutes per comment. 

    30,000 minutes = 500 hours = almost 21 days. 

    We're all guilty of complaining here and there. I know I am. But stuff like this kind of puts it into perspective. 

    The way Netflix went about their communication was a little weird. I still think they could be a little more transparent as to WHY they're doing it (I think we all kind of know why but it would be nice to hear it from them). But I think all the complaining is a bit much. 

    We're all going to be fine. 

  • Eric Rice

    The thing that I'm struggling with here is how they might have done this better. Clearly there is a long-term strategy and rationale behind the price hike and the split, but people seem to be only focused on the fact that their subscription went up (and missing that the service is STILL A FANTASTIC VALUE at that price ... but I guess they'd rather pay $1-2 per rental from iTunes on a few devices than get a large buffet of content available immediately and cheaply on most home theater devices that exist).

    So, rather than criticize, can anyone proffer a way they could have improved their roll-out and message, so the rest of us can do better when we're faced with similar challenges? Or are we all just doomed to suffer the wrath of the public via snide comments and lost business like Roy's below?

  • Jym Allyn

    An incredibly easy solution would have been to do the break up in two steps:
    Split services (for about a year) with each service being $8 each and the combined service being $12 which is still a $2 increase but would be cheaper than both services separately.  If Netflix was concerned about excess use by gamers, they could have added a $2 surcharge for on-line gaming.
    It would have explained the price increase but not traumatized users by having them make an all or nothing choice.
    When they finally found a buyer for the DVD service, then they could have formalized the split without pissing off their customer base and having so many lost customers.

  • acarr

    It definitely still is a fantastic value. Perhaps this just wasn't the right time to split the services from Netflix? Or perhaps there was a way to do it so they were still integrated, and only slowly phased apart? What are your thoughts? 

  • Louann Oravec

    My daughter is on a limited budget; I am going to suggest to her to either change it fast or cancel it. I have streaming only; so it does not affect me. If I want DVD's, books or other materials available from the library; I can now order them through my county library and they will come in the mail for free. Thanks to the taxes I pay.

  • Eric Rice

    ... and that provides some good insight as to why the split makes some sense. The streaming market can only grow right now, while the DVD market carries a lot of competitors and potential downfalls, including the recent problems at the Post Office.

  • Lora Kolodny

    Since I recently wrote about the fiscal woes and lack of innovation at the U.S. Post Office here, I was wondering how much of this has to do with anticipated postal rate hikes. Those expenses used to figure prominently in their earnings calls (as with any company that has a strong, logistical overhead burden). As a cleantech enthusiast, I'm really glad to see Netflix give less of a reason to studios to produce this future landfill DVD junk in splitting off and likely scaling back that part of their business from the main brand. It's easier to become efficient through green IT, etc. than to process all that plastic safely.

  • Angela Hausman

    Nice post.  I think today's email I got from Hasting's was even more insulting than the email in July announcing the price increase.  Does he think we're all stupid.  Here's my take on the situation (I linked to your article): http://hausmanmarketresearch.o...

  • Roy Schlegel

    What's with all the complaining?  Can we please give Hastings some credit?
    Netflix is not as company-centric or as customer-unfriendly as this article would have you believe.

    Canceling my service was a breeze. 
    Click here.  Click there.  No concerned customer reps attempting to stop me. 

    I was even thanked by the nice little robot for my 6 year patronage.