Netflix Is Really Sorry It Tried – Er, Decided – To Gouge You

Netflix, which had very successfully been delivering video content via both the U.S. Postal Service and Internet portals for $9.99 a month, suddenly decided this month to split those services and jack up its subscription cost by 60%.

Netflixers, understandably, were not happy. So CEO Reed Hastings sent this email to subscribers:

Dear [So-and-So],

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.

Which will, no doubt, be many. (21,827 at current count.)

So, to summarize: Blah blah blah sorry blah blah blah you won’t will pay more blah blah blah and new subscribers almost certainly will too.

Chalk up one more casualty of the Great Media Shift Almost No One Can Figure Out.

Pat. pending.

UPDATE: For some reason, the hardworking staff initially thought that “there are no pricing changes” meant the old rate would apply to existing subscribers, but apparently we were wrong. So Netflix is an even bigger idiot than we thought.

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5 Responses to Netflix Is Really Sorry It Tried – Er, Decided – To Gouge You

  1. They spend all this time building up an utterly successful DVD mail delivery brand called “Netflix,” and now jettison the brand (for the DVD delivery side of their business) in lieu of “Quickster.”

    Somebody writing a book on marketing is about to start a new chapter, “Boneheaded marketing decisions that destroyed a company’s successful brand.”

    Why not just grandfather in existing customers at their current rates, and charge more for new ones? You’d give customers a great reason for sticking with your company, and you can say you are “rewarding your customer loyalty.”

  2. Liz says:

    The Journal deals with similar issues – in order to remain relevant you have to offer consumers access to content via multiple modes (in our case print, online, email, and various digital multimedia formats) at the same or a similar price, with the internal ramifications being that you end up doing much more work for virtually the same revenue. It’s a huge dilemna, and strategies like offering a discounted rate for a restricted subscription (say, online only) only seem to cannibalize revenue without really attracting new consumers.

    That said, it’s absolutely INSANE to think that the solution to this problem is to carve the different access modes into separate brands. What possible benefit could Netflix see in this? Are there tax write-offs on stupidity?

    Maybe the better answer for Netflix would be to push into the device market, or potentially look into making content creation partnerships (i.e. generate content for a specific sub-set of consumers – maybe gamers, if they see that as a core demographic). This seems like such a squandered opportunity.

  3. Makayla says:

    I Have been Looking up Movies to whatch all day and couldnt find one! Netflix is a great company… But, They dont have any new movies there all old, but most are good.

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