Netflix's mea culpa disaster: 'Seems like a panic move'

Netflix's mea culpa disaster: 'Seems like a panic move'

Summary: Netflix's apology to customers went over like a lead balloon. Analysts say Netflix looks like it's panicking over backlash to pricing changes.

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TOPICS: Mobility, Hardware
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Netflix CEO Reed Hastings issues a mea culpa to customers and continues to be pounded over the head with it.

Late Sunday, Hastings delivered his apology and said that it will separate its DVD by mail service under the Qwikster moniker. The move was panned by widely panned by customers.

As analysts handicap the move, the consensus appears to be that Hastings and Netflix panicked after losing DVD customers and facing a backlash to its pricing changes. Indeed, a Frank N. Magid Associates survey found that 30 percent of customers are planning or at least pondering a Netflix exodus. Consider Netflix's week so far:

Morningstar analyst Michael Corty said that Netflix looks like it clearly panicked.

Netflix sent a letter to customers announcing a formal split of the DVD and streaming video business. At first glance, this seems like a panic move by the company. The DVD business will be named Qwikster and have a separate website; customers who receive both DVDs and streaming will get two separate bills. The Qwikster service will also have a subscription tier that allows customers to access video game titles in addition to video content. By highlighting the two separate charges on credit card statements, ironically, more subscribers could opt to drop the plan that delivers the least value.

Indeed, Wall Street is still panning the stock. Here's the 6-month view:

Corty said:

We've never really understood the company's decision to demarcate the DVD and streaming business in the first place. There is room to invest in the streaming business and use DVDs to keep customers satisfied at the same time. We think the July price increase was necessary to help Netflix invest more in the streaming business, but it was a mistake to not offer a discounted price to customers taking both DVDs and streaming.

In other words, Netflix compounded a discount pricing blunder with a lame apology and a DVD business separation. Hudson Square analyst Daniel Ernst said:

Under a single company serving customers through a common portal, we believe Netflix has a better chance of cross selling the two services. Should a DVD only customer put a movie on his/her queue that is also available digitally, Netflix can suggest the “watch now” option, tempting the customer to upgrade his/her account. Similarly, should a streaming only customer wish to view a program not yet available through digital rights, Netflix can alert the customer to the availability of the disc on the DVD service. Under the separation plan we see this ability to cross sell and convert as greatly reduced.

The big question among analysts is whether the worst is over for Netflix. Short answer: Possibly. Piper Jaffray analyst Michael Olson said a sale of Hulu could be worrisome to Netflix.

One piece of negative news that could emerge in the coming weeks would be the sale of Hulu to a Netflix competitor. Despite the fact that it has been discussed in the media, if Amazon or Google purchases Hulu, shares of Netflix would likely respond negatively.

Topics: Mobility, Hardware

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39 comments
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  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    Still waiting for my apology email, but since i cancelled my account last night, i guess it won't be forthcoming.
    dwhipple
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      @dwhipple
      Likewise, I too have had enough with Netflix recent changes and promptly cancelled my account. I loved the service up until now but I don't want to deal with a business that doesn't understand it's consumers.
      ian20x
      • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

        @ian20x & @dwhipple
        Amen to both!
        Netflix beat out Blockbuster by understanding and catering to customer needs while Blockbuster focused only on their profits. All of the recent moves by Netflix demonstrate that they have completely lost their consumer perspective and customer focus. They are now focused solely on pumping up profits and deserve to follow Blockbluster into the trash bin of once great companies.

        Farewell Netflix. I'll be the first to jump on board with the next company that provides what customers really want at a competitive price. Give us the flexibility to grab our movies in whatever format we want at a reasonable, all-inclusive price. Breaking services out at much higher individual prices was an insult to everyone who made Netflix successful. Their arrogance in the matter just made it worse. Empty words of apology won't cut it.
        BillDem
      • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

        @BillDem - Part of the problem IS netflix (being anti-consumer by splitting and making the service more difficult to use), but part of it squarely lays on the hands of the MPAA, other content providers, and ISP's. All whom are making the transition to digital streaming difficult and charging exorbetant fees. The ISP's have a vested interest in BLOCKING more streaming because it would require them to reinvest in their infrastructure to support the increase in bandwith.
        JT82
      • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

        @ian20x Also cancelled - I hardly used it these days anyway so this was just the nail in the coffin. HBO provides better content & newer movies & is the same price as the combined DVD + Streaming from netflix.
        Bruce Banter
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      @dwhipple
      I'll hold off until they actually pull the trigger but then I'm out of here. I do not want the hassle of dealing with two companies. I am hoping Amazon is looking to buy HuLu becuase there are a ton of Netflix users just looking for someone who knows what customers want.

      You don't often see this level of arrogance and ignorance that this CEO displayed. Netflix could have been the next e-bay or Amazon but now they will be a case study of how to destroy a great company. Nice work guys.
      KBabcock75
  • Is this a "New Coke" Strategy?

    It seems like they're trying to use this marketing technique. Will it take 79 days for "Classic Netflix" to return?
    ancientprogrammer
  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    Splitting netflix into two companies may make sense to an accountant. To the user it is inconvenient and does not make sense. Now if there is streaming and DVD company why not split them further into old release streaming, new release streaming, DVDs, Blue rays... four companies. Makes sense? Easy to do accounting I guess :)
    paul2011
  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    Everytime Netflix increased prices it said it was to improve service with more options and better selection but it never seemed to happen. What many have not mentioned is that Mr. Hastings finally revealed the more options and better selection that we have been paying for all along. GAMES!
    Great so I, and many many others, have been investing in a new company/product that I have no interest in. If Mr. Hastings wanted to start a games rental/streaming company he should have done so and he even could have called it "Quikster" (lame name btw) but he should not have done it behind his loyal customers backs (and with their money) and left them with LESS options and selection of the product that they came to Netflix for in the first place. MOVIES! Mr. Hastings has obviously never heard (or doesn not believe) the saying "if it isn't broken don't fix it." This will go down as one of the worst business decisions of the last 100 years and be used again and again to teach others how NOT to run a business. Of course sadly, like Mr. Hastings, some will not listen to it and think that they will be the one to do it right this time and then destroy yet another great company and the investments placed in it.
    metreobx
  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    i cancelled the dvds and will keep streaming short term.
    But the content is set to get worse not better, and as such when Netflix loses its starz deal I will cancel and use Prime instead..
    evilcart
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      @evilcart Hear hear! I did the same thing. But with the loss of Starz, a poor selection is getting worse. I only do it for the documentaries, etc. For movies, I've gone with RedBox: simple and ubiquitous, at least in my area (Orlando).
      chago2009
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      @evilcart
      Your first mistake was going to streaming. You dropped the service that had more quantity of content and better quality picture and sound. You moved to the high profit-margin product like he (Hastings) had hoped. With streaming, Netflix could have a low-quality MPEG-2 copy off a mono-audio VHS tape on their server and when you complain about the quality, they can blame it on your ISP or on the network in-between. Whereas, with the DVD, you have DVD-quality audio and video always.
      Until true high-speed unlimited internet is available EVERYWHERE, streaming is not a viable solution. Physical media is still the here and now, and will be for a good long number of years. The only substitute would be a net-ready device that stores a temporary download copy that's deleted once watched - then there's no concern about bandwidth restrictions, the movie is there in entirety BEFORE watching begins.
      reziol
      • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

        @reziol ... We live in an area where, depending on how much you feel like paying, true high-speed internet isn't always a very cost effective option, nor do I find the picture quality especially appealing. So DVD's do make sense for us. All the local DVD rental shops have closed down (Blockbuster, etc.) except for Red Box, so Netflix is certainly the best DVD option we know of at the moment.

        Are there other DVD rental options available that are less well known?
        justin.donie@...
      • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

        @reziol
        You do know when you download a movie it still uses the same amount of bandwidth you just get it with no buffering needed so no lag but you have to wait for entire movie to finish before watching amount of bd the
        Fletchguy
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      @evilcart

      Also on prime! $40 a yr for students. I mainly got it for the free 2 day shipping (halloween costume buying season!) But I am looking forward to trying out the streaming, I know its a small library compared to netflix, but its pretty much free so i'll give it a shot.
      Bruce Banter
    • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

      I cancelled my DVD-only portion a couple of weeks ago and have only the streaming portion at the moment. I also signed up for Amazon Prime for a free month, which ended yesterday. I kept it and paid the fee. I also hope Amazon snaps up Hulu. I'll likely cancel my Netflix completely in the next month or so. I'm also waiting to see what happens to their content.
      readydave1
  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    They have new pressure coming at them too. My ISP was one that got federal money for putting in fiber optic. The local telco/ISP has it installed and will be hooking it up next week to my home. (Oh yeah...)

    One of the things I have to do is make a decision if I want to go with their streaming services. I am seriously considering it and kicking Direct TV, Netflix and Hulu to the curb. Their prices are a lot more competetive, I just need to see how well it works before I wave goodbye to my current providers.
    NoAxToGrind
  • RE: Netflix's mea culpa disaster: 'Seems like a panic move'

    "The big question among analysts is whether the worst is over for Netflix."

    Let's see . . .

    -Forced to make a price hike
    -Stock is going down

    If they can't figure out a way to get back on track, I'd say the worst has just begun :(. They "needed" to raise the price, but the decline in stock is likely to negate the price increase . . .
    CobraA1
  • Netflix is becoming a pain

    A serious question to Larry Dignan and other readers/commenters.

    I am tired of Netflix too and wont mind jumping ship if an equal or better alternative is available. Can any one suggest an alternative to Netflix Streaming?
    DontBeEvil
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    vang1234