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Tuesday, September 20, 2011

Netflix Chief, Please Stop Talking

Posted By on Tue, Sep 20, 2011 at 11:35 AM

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Netflix CEO Reed Hastings should be applauded, I suppose, for trying to communicate with his customers directly -- apparently in an attempt to add the personal touch. But he's no good at it, and he should never do it again.
On Sunday, Hastings posted what was ostensibly an "apology" for the company's handling of the decision in July to revamp the Netflix's billing, in effect raising monthly fees by 60 percent for people who wanted access to both streaming video and DVDs by mail. The backlash was loud and sustained, even though prices were still remarkably low given what customers got in return -- basically unlimited access to videos for just $16 a month. Part of the problem was that Netflix didn't explain its actions in a way that might have placated customers.
Sunday's missive was even worse.

Besides being an apology, it was also an announcement that Netflix would further cement the DVD/streaming split by cleaving the company in two. A new, separate, wholly owned company called Qwikster will handle DVD rentals, while Netflix will handle the streaming.
This makes some sense. Streaming is the future of video rental (though it might be some time before it eclipses DVDs, which makes the plan risky at least in the short term.) Hastings has good business reasons for doing what he's doing, but rather than clearly explain what those reasons are, Hastings basically laid down a lot of vague bullshit.
Hastings wrote that he "messed up," in July, when the pricing changes were announced. "I owe everyone an explanation" for splitting the DVD business from the streaming business, and charging more to people who want both, he said. Sadly, though, he didn't explain it, then or now.
"It is clear from the feedback over the past two months that many members felt we lacked respect and humility," he wrote.
But that wasn't really it. What really happened was that prices went up, without a concurrent improvement in service (there was, if anything, a reduction in service), and people were pissed. The company lacked respect, all right, but what it mostly lacked, and still lacks, is forthrightness.

Netflix's costs for acquiring video from media companies for streaming are going up -- and may soon skyrocket. (Because of a quirk of copyright law, costs for acquiring DVDs will stay about the same). Hastings doesn't really get into this, he just talks about how the "cost structures" of the two businesses are different, as if customers gave a rat's ass about Netflix's internal business strategies.
What customers do care about is their ability to watch videos as conveniently and cheaply as possible. On this, Hastings gave them nothing. All he did was announce that the company was doubling down on the decision that pissed everybody off in the first place, and, oh, by the way, he's sorry about how they announced it.

All customers got from Netflix was this apology and partial explanation of internal strategies. Not surprisingly, this has not gone over well.
The whole "personal touch from the CEO" thing is fine, but only if the CEO is honest and clear, and if he or she truly puts the customer first. In the absence of this skill on the part of Hastings -- who otherwise seems like a smart, able guy -- Netflix should just let its PR department lay down the bullshit, like most companies do. After all, that's it's there for.

Dan Mitchell has written for Fortune, The New York Times, Slate, Wired, National Public Radio, The Chicago Tribune, and many others.

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Dan Mitchell


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