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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]

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