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On Sunday, September 18, 2011, Reed Hastings, Co-Founder and CEO of Netflix decided to post a blog entry in an effort at damage control. Somehow a person who has created an extremely successful DVD rental empire has supposedly overlooked the possibility that effectively doubling rates could possibly make his customers angry.
The original post is here: http://blog.netflix.com/2011/09/explanation-and-some-reflections.html As I've grown weary of endless spin from those in power, I've decided to provide a translation for any who may be interested. What follows is the text of Hastings's blog entry in italics, with my paraphrasing afterward in bold text: I messed up. I owe everyone an explanation. I messed up. I'm going to give you an explanation that justifies my greed as CEO of Netflix. 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. I'll try to explain how this happened. We've pissed off too many customers since announcing our rate hikes, so I'm doing the standard customer-service apology as damage control. 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) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly. My greatest fear is the loss of our virtual monopoly on rented home video entertainment, now that Starz is pulling out. Here's two examples of failures of once-successful companies to arouse sympathy. Please understand that because Starz is taking away about one thousand movies from our service, I need to get ahead of the game and charge you more money to make up for projected losses. When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong. When Netflix is altering price structures to produce more revenue, I need to spend more time apologizing and giving simulated heartfelt explanations if I want to keep people from transplanting my money tree. 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. In hindsight, I should have paid Starz what they wanted. 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. It wouldn't have changed the price increase, but it would have been the right thing to do. But now that I see how a significant portion of my user base is pissed off and close to either scaling down or canceling, I realize I should have started my spin sooner, and the rate hikes more gradually. I'm still going to insure my personal wealth, no matter how much you don't like it, so I've decided to make it sound like the real offense is a lack of communication. That way my feigned humility is validated and hopefully you'll be less angry about being charged too much, since now I'm so willing to have a fireside chat with you. So here is what we are doing and why: Here is what we're doing, and what I want you to think is the reason why: Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible. Here's a list of things you love about our DVD service, to get you thinking about how great we have treated you in the past, and hopefully lessen the sting of how we're treating you now. 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 feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service. We can't currently offer all our DVDs as streaming selections, and I want you to think that's the reason why I'm charging you more. I feel the need to tell you about our evolving market, because somehow that's supposed to explain why having more DVDs than streaming content justifies the rate increase. So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It's hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to "Qwikster". We are splitting our services into two different entities, because later on we can raise rates as we see fit, without the customer making inconvenient connections in their heads about the disparity between the two pricing models. We chose the name Qwikster because it refers to quick delivery. We will keep the name "Netflix" for streaming. We chose the name Qwikster because it rhymes with 'trickster.' We will keep the name Netflix for streaming because if it goes under, we can more quickly disassociate ourselves from our past mistakes with a different name for our original service, and our stockholders can't completely dismantle our money machine. 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, and now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. Another advantage of separate websites is simplicity for our members. Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. 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. I'm finally going to provide a much-requested video game rental service, for more money of course, which I like to call an 'upgrade.' DVD by mail has always had its own team, but since we added streaming, we've had to hire more people, so we're going to charge you more. We're doing separate websites for DVDs and streaming, and I'm telling you that it's for simplicity, while I simultaneously inform you that you will have to double your efforts sometimes. There are no pricing changes (we're done with that!). Members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges. There will be no more pricing changes until we decide to buy another yacht or summer estate. Andy Rendich, who has been working on our DVD service for 12 years, and leading it for the last 4 years, will be the CEO of Qwikster. Andy and I made a short welcome video. (You'll probably say we should avoid going into movie making after watching it.) We will let you know in a few weeks when the Qwikster.com website is up and ready. It is merely a renamed version of the Netflix DVD website, but with the addition of video games. You won't have to do anything special if you subscribe to our DVD by mail service. I want to create an additional CEO for the company, with commensurate pay, and you need to help shoulder the cost. For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive 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 the same for many of you. We'll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand. For me, the Netflix red envelope has always been a source of cash in my pocket. I want you to think I have a sentimental attachment to the Netflix logo, so that you won't notice how raw I've rubbed my hands in anticipation of increased revenues. Some members will likely feel that we shouldn't split the businesses, and that we shouldn't rename our DVD by mail service. Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast - it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further. A huge portion of our members are very unhappy about these recent developments, but we're going to continue with them anyway. We want you to think that creating an additional business, which requires more staffing, compensation, etc., will not only make us better at streaming, but also better at DVD by mail... even though historically speaking, our previous attention to that service is why we're driving sports cars in the first place. We will be the best because we say so, and all the additional money we rake in from global streaming will make us very happy that we raised your rates. 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. I want to thank all my customers who would rather pony up the extra dough than simply take a moment and look elsewhere, like Blockbuster or Hulu Plus. I want to pretend to apologize again, with no intention of fixing the problem. I also want to phrase my apology so that I don't actually admit that I treated my customers 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. Both the Qwikster and Netflix teams will work hard to produce me revenue. As far as your trust... as long as you enjoy sitting around and watching movies and recorded televsion shows, and we make it as easy as possible for you to do so, your trust doesn't matter. You'll still pay us and keep me rich. Respectfully yours, -Reed Hastings, Co-Founder and CEO, Netflix Deal with it, -Reed Hastings, Video Pimp Daddy |