Several months ago Netflix users got an abrupt surprise. They were told the rates were going up and that there would be a separate charge for streaming video vs DVD. There was much grumbling and grousing and cancelling of plans. In fact, the stock dropped more than 40% since the announcement was made. Today, the formerly $300 per share stock is now $150. Most people aren’t even tempted.
The following email was sent today, from the CEO, Ralph Hastings:
Dear XXXXXXX
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 acknowledge and thank you for sticking with us, and 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.
What a dim-witted business blunder. Now we know how the the guy who decided to go with New Coke felt.
Nice try, Netflix, but I dumped you last month and I plan to keep you dumped. How stupid do you think we are?
Behold! The free market at work!
Darwin Awards – RIP Netflix.
LOL @ Slow. You’re right.
I’m dropping it next Feb when Stars/Disney is removed.
Actually, Amazon Prime is lookin’ like a pretty good deal to me.
Amazon Prime is great. Haven’t paid for a movie yet. Yeah, they are older movies, but so are some of the best.
CinemaNow is not so great. It doesn’t always stream well. I am staying with Amazon–no monthly fees and the per movie cost for the ones that cost are comparable to on demand and cinemaNow.
@Clinton
Thanks for that information. I will have to check that out. You have to worry when a stock drops that much. I am not sure it will come back. It was a good lesson for me to stop coveting stocks I don’t own. Taught me a lesson without pain.
You can get newer movies on Amazon by the way for a small fee, it is just older ones that are free.
What makes me sick about the Netflix situations is that it was such a good plan. they weren’t losing money. They could have nudged the price up over time. I hate when some lame-o gets a ‘good idea’ that isn’t. I still hold a grudge over New Coke. It tasted like panther pee.
The Netflix letter reeked of desperation and sounds like a teenager wrote it. I actually thought it was spam when I first got it.
Bye bye Netflix. I am glad I didn’t own your stock.
Stuff like this makes me wonder if this guy was short his own stock…
Netflix stock is down another 13 bux a share. This is a free fall, it appears.
New Coke syndrome.
Eh, I’m still a holder on to Netflix. Honestly, I’ve not found a service that fully competes with it. I also have Amazon Prime but not for the movies. When I looked at the Amazon Prime movies, I was disappointed in the selection. While I won’t claim that Netflix has a wonderful selection, it’s better than Prime’s. There’s Xbox Zune service, which has all the movies I want to watch and they are in HD, but good god are they expensive and there is no subscription service. There’s Zulu, comparable to Zune, but again, no subscription service. So that really only leaves me with one choice, Netflix. It’s a subscription service allowing me unlimited number of movies a month. Me and my now wife are trying to paying off a wedding, so we are very limited on our social activities until we do so, meaning we watch ALOT of movies. If I tried to watch the same amount of movies with a pay per use service, we would greatly exceed the subscription cost of Netflix. While netflix may not have all the movies we want on the streaming, they make up for it by letting me have the DVD’s, for the ones they don’t stream, mailed to me. I also happen to live close to a distribution center, so I mail the DVD’s back on Monday, I get new ones on wednesdays, which allows me to pretty much allows me to get my money back+ on their service.
So in essence, I don’t disagree that the abrupt price jump was disappointing, but again, there isn’t a real competitor out there that fits the bill. If Zulu or Zune would come up with a subscription service, I would be happy to switch, but it simply doesn’t exist, and from what I can tell, there are no plans for either to do so.
As for the stock crashing, that is the free market at work. This is how people punish companies for stupid decisions that they make. Hopefully Netflix (Qwikster??) learns their lesson and hopefully doesn’t make the same mistake twice. However, have any of you been watching the stock market lately? It has been like a steady roller coaster ride for a while now. Up one day, skydives the next. While it doesn’t account for halving Netflix’s stock price, I’m sure that also plays a part. Until we get the government out of picking winners and losers, quit meddling in business affairs with overly restrictive regulations, and start creating a business atmosphere that calms fears and invokes a sense of consistency and trust, the stock market is going to remain a wild ride.
I still have it also, I have just cut back on number. @Rednex
It was a wonderful model for movies–the best out there. Why did they have to mess with it.
@MH
Agreed. I think they messed with it for legit reasons, just not in good judgement. We are moving away from physical media to virtual media and Netflix is trying to keep up with that. Why that resulted in a price increase for something they were already doing, I don’t know. I can only venture guesses.
1. For some unspecified business reason, they felt the need to break the service up into seperate entities. When doing this, they will need to hire new people, expand infrastructure, etc, so they need more funding. Especially if they are looking at providing newer movies much faster ala Zulu or Zune.
2. I’m really venturing a guess on this one, but due to the lawsuits and net neutrality broohaha, it may have some basis in that. Again, I’m pulling that one out of my hindquarters as a possible reason. I have no proof, just a thought.
3. They just want to make more money and thought the market wouldn’t mind, or price of providing the service is going up with economy, so they are adjusting. 🙂
@Rednex
Maybe they just got too darn big for their britches. I would dump the streaming except my 5 yr old gdaughter loves to watch movies on the ipad. I am not going to mess with that!!! That buys me peace and quiet wheile she is here.
@MH
LOL – I don’t blame you. There is alot of value add in keeping a little one entertained.
What is this streaming that you speak of? And how does one get the video tape into that tiny slot? My Betamax tapes don’t fit.
Guess I’ll just have to go listen to my 8-tracks.