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Netflix’s Qwikster Debacle

What is going on in the mind of Reed Hastings, Netflix’s CEO?
October 11, 2011

As you’ve no doubt heard, Netflix has now pivoted on the pivot of its recent pivot. A few months ago, it announced that it would be separating the cost of its DVD-by-mail and its streaming plans, creating an effective price hike for those who had taken advantage of the company’s bargain bundle subscription. Outrage ensued. Then, a few weeks ago, CEO Reed Hastings emailed subscribers again to announce another change: Netflix would be separating its DVD and streaming services entirely, redubbing the former “Qwikster” and assigning it a separate, albeit linked, website. More outrage ensued. And just yesterday, Netflix announced a change to the change: the customers had spoken; Qwikster was a bad idea; the plan to divide services would be scrapped. Murmurs of confusion and disbelief ensued.

All in all, it has been highly erratic and ill-planned behavior for a star of the Web 2.0 era. What is going on in Hastings mind?

Each of Netflix’s business decisions may well have been sound. A price hike associated with the DVD-by-mail services seemed inevitable–mailing costs were simply too high. Indeed, with the majority of Netflix’s new customers signing up for streaming-only plans, and with streaming an increasingly powerful force from Hulu and Amazon, it’s clear that the real future of the business is in the cloud, not in the optical disk, and Netflix is right to focus on battles on that front.

Even so, Hastings didn’t need to say so. The main problem with Netflix’s recent moves has been less the business case for them (many analysts agree that the price hike, in particular, was necessary). Rather, the main problem was Netflix’s handling of the changes–the garbled emails sent by Hastings, the poor timing, and the overall sense of indecision hanging over the whole affair.

Here are a few things Neflix might have done differently, in retrospect. First of all, it should have continued to offer some sort of reward to existing customers who had signed up for a bundled streaming-plus-DVD option. As one of those customers myself, I felt irritated that my earlier decision to spend an extra $2 for DVDs was not honored or rewarded in any way; even if I had been informed that existing bundlers were being given a mere $1 discount over new subscribers, I would have felt my early loyalty to Netflix was being honored.

Second, if Netflix was set on both raising prices and separating its two services, it ought to have made those announcements simultaneously. The steady pulse of one weird, sweeping change after another was too much to bear; it was only after the Qwikster announcement that I personally decided to cancel my DVD subscription.

Third, and most importantly, someone could have actually edited Reed Hasting’s emails and blog posts. Indeed, Neflix’s entire PR strategy ought to have been more thoroughly thought out from the beginning.

There are so many communications missteps that they are difficult to list. Netflix underestimated the iconic appeal of the traditional red envelope with its familiar name affixed to it; even if DVDs constituted the withering branch of Netflix’s business, it needed to be properly honored as the artifact that started it all. The name “Qwikster” could have been given more than a modicum of thought; so silly is it–instant streaming is a whole lot “qwikker” than the US Postal Service, after all–that I nearly checked my calendar to make sure it wasn’t April 1st. (The corresponding Twitter handle appears to belong to some kind of stoner.) Hastings should have also realized that an email that began “I messed up” would be expected to contain some sort of apology or reward–perhaps those price changes would be revoked after all!–rather than a new form of punishment and source of irritation. Stepping on someone’s toe repeatedly while saying “I’m sorry” is an apology in name only.

Finally, Hastings ought to have realized that while the ins and outs of the business case for Netflix’s maneuvers are interesting to tech bloggers and business analysts, they are not so to Netflix’s average consumer–to the vast majority of the recipients of those emails. Each of Hastings’s communications suffers from a severe case of TMI, alternating from melodrama to dry business speak. At one point he’s speaking of his “greatest fears”; moments later he’s talking about how DVDs and streaming have “very different cost structures,” as though he were delivering a report on quarterly earnings (or losses–Netflix shares have plummeted precipitously since July). Hastings’s messages have been part Woody Allenish neurosis, part dry economics documentary–and just about everyone in the audience has felt the impulse to walk out.

It’s ironic, given the business Netflix trades in, that its CEO’s main failing should be as a showman.

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