Netflix angers their customers

September 29, 2011 | By More

Digital Wall Street Journal with Netflix CEO Reed Hastings taking the heat.

The Wall Street Journal reported on 20th September 2011 that “if the CEO of Netflix Inc. were in a movie, the townspeople would be chasing him with torches and pitchforks.”

Widely reported in news everywhere is how Reed Hastings, Netflix’s co-founder and CEO messed up the way they handled the strategic change in direction. He announced that Netflix is separating DVDs from streaming because its future lies in streaming. The DVD-by-post service, he said, would move to a new website, with a new billing system, and be renamed Qwikster.

The new website to rent DVDs from Netflix

Earlier, at the beginning of September Netflix began imposing new prices on its 25m subscribers. Netflix would henceforth offer them a choice: $7.99 a month for streaming, or the same price for DVDs. People who wanted both would pay $15.98. This was a change to the existing plan of $9.99 a month for both DVDs through the post as well as the right to stream some films and programmes.

Customers don’t like it. They have jammed the firm’s switchboard and posted 82,000 largely hostile comments on its Facebook page.

Netflix ( had been established in 1997 to deliver DVD by mail-order. When they announced their IPO in 2002, they were identified as one of the few very successful dot com companies. Then they were mailing 190,000 discs per day to its 670,000 monthly subscribers who paid about US$15 per month for the privilege. By 2009 it was offering a collection of 100,000 titles and on February 25, 2007, they delivered their billionth DVD.

As online delivery of movies expanded from cable companies and direct broadband access to the home becomes widespread and start becoming a threat to physical DVD delivery, Netflix too, introduced internet video streaming free to existing subscribers in 2008.

The transition from physical to digital hasn’t been easy for any media business. The pain often has been exacerbated by attempts to hang onto their old businesses without focusing on new ones. Mr. Hastings is betting that upsetting existing subscribers is preferable to falling behind those changes.

Since backlash to the price increase, investors have also grown disillusioned. Netflix’s market value has plummeted, wiping out about $8 billion in stockholder wealth. The day after the Netflix announcement, the stock shed more than $11 to close at $143.75 — a steep decline from their July peak of $299.

Netflix expects to have 600,000 fewer subscribers at the end of September than at the end of June, by far the worst downturn in the company’s history.

The Economist has a low opinion of how Netflix announced their new plans

Mr Hastings has since apologised to his customers. “Both the Qwikster and Netflix teams will work hard to regain your trust,” he wrote on his blog and a mass email to subscribers. “We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.”

The split may seem like the natural next step to Mr. Hastings, but he appears tone deaf to subscribers, said John Tschohl, president of the Service Quality Institute, a consulting service, and author of the book “Achieving Excellence Through Customer Service.”

“I don’t think Netflix is listening to its customers at all,” he said. “They have really blown it.”

The options open to Netflix and Reed Hastings are tough – as CEO, he has to have a view of how the future will pan out for his business, and what direction to take, and when. He decided to do it this month. It is never easy. Only time will tell if his huge gamble will pay off.

The lesson here for entrepreneurs is this: if you cannot risk angering your customers, you probably shouldn’t – unless you are really confident you have no other choice.


Material for this article based on reports from:
Wall Street Journal Digital Edition
The Economist


UPDATE: 10 Oct 2011
Netflix reverses their decision to create Qwister and move the DVD business there after overwhelming customer dissatisfaction. Read a copy of the letter to customers here, posted by a confused one.



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About the Author ()

EngTong, pioneer and innovator. Graduated from Imperial College London with an MBA from Cranfield School of Management. Lived in Scotland, England, California, Beijing and led teams in Italy, France, Japan, Taiwan and Malaysia to do the impossible. Now based in Singapore and believes the future is to blend the sophistication of western management practices with the strength of Asian Values. Trained as a Chartered Engineer. Member of IET, Associate of City and Guilds and a certified SixSigma Champion.

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