Oh Netflix: This Will Be One for the Textbooks

Here is the letter that appeared in my inbox yesterday:

The apology

Dear ____,

I messed up. I owe you an explanation.

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.

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.

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.

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.

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 qwikster.com 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 Qwikster.com and Netflix.com websites will not be integrated.

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 Qwikster.com website is up and ready.

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 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.

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.

The build-up

For anyone who has not been following the Netflix news, a price hike was announced in July for the DVD subscription plan.

Since customers seemed to choose Netflix based on its streaming and DVD package, it came as a bit of a shock. The short, terse message informing customers did not help either.

Customers made their negative feelings known via Netflix’s company blog.

Reactions from customers to the letter

With this recent letter, according to an article by Austin Carr, social analytics firm Crimson Hexagon (which scanned tweets  during the 24 hours after the letter was sent out) “found that of the 86,997 opinions it analyzed, roughly 43% were negative, with 10% saying CEO Reed Hastings’s letter was too little too late; 19% saying they disliked the “Qwikster” name; and 14% signaling they are against the services being split. Another 28% simply passed along the news via Twitter (which we’ll assume represents neutral opinion). Just 12% agreed with Netflix’s decision.”

Carr also mentions that “more than 24,000 responses currently clog Netflix’s comment section.”

Comments are not the only thing customers are leaving. They are leaving Netflix as well. The Company had worse-than-expected subscriber losses: around a million customers in fact.

Other reactions to the change

Not everyone is taking the split so negatively. For example, Blockbuster and Dish Network seem to be taking advantage of the situation.

Your reaction

What do you think? Do you think Netflix is going to tank? What could they have done better? Was there even a positive way to address this issue?

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2 Responses to Oh Netflix: This Will Be One for the Textbooks

  1. TheWiseOne says:

    Netflix messed up horribly. More people like the Dvd’s than the streaming. Change the streaming to Qwikster and keep Netflix as the DVD’s. (But understandible it is easier/cheaper to change packaging than it is to change all those apps that everybody have on their game systems and phones) This move just put Redbox on top of the Renting DVD source. I imagine that Netflix streaming will be better than it is now and they will probably charge more… again. Bottom line is Greed. Gotta make more money… Even when you are already blowing the competition out of the water. There is nothing out there that comes even close to wide range of moving Netflix is putting out. Qwikster won’t last if it keeps the prices that Netflix has now. Netflix might have a shot but I’m pretty sure that another party will overtake the streaming industry.

  2. TheWiseOne says:

    Also i might add that it is Great timing for the oh so smart running Netflix because the CEO of Apple Tim Cook is suppose to announce that apple will be working hard to make a new and improved Apple TV and This has to be successful for Tim Cook to maintain his CEO status. So its going to important. Streaming through itunes never was a strong point for Steve Jobs and his successor has a great shot at doing it.

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