Netflix's lost year: Four management lessons

Netflix's lost year: Four management lessons

Summary: CEO Reed Hastings believed his own press, alienated key execs as well as customer and may have misread a few metrics amid many miscues over the last year.

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TOPICS: CXO
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Netflix's lost year since it raised prices, botched the de-emphasis of its DVD business and handled customer relations is one for the record books, but the lessons learned will stick around for a while.

CNET News' Greg Sandoval has a great account of Netflix CEO Reed Hastings' miscues and the aftermath as the company transitions to streaming. Here's a look Netflix's mistakes:

Hastings believed his own press clippings. Hastings could really do no wrong before he decided to split off its DVD unit and raise prices. The bet on streaming made sense. The hubris toward customers didn't. Creative destruction is fine and sometimes hurt. Creative destruction to customer relationships is deadly. Hastings seemed to believe Netflix was vital to people. Anger didn't fade.

Team alienation. Hastings lost focus on key executives and their input. As a result, many execs responsible for growing Netflix bolted. Sandoval reports:

Few people who had worked for Netflix for any length of time were surprised that there wasn't more discussion about the plan. As Netflix's business blossomed and as he was personally applauded in the press, Hastings had grown much more confident in his own decision making, less receptive to taking advice from his senior management team. What's more, few of the people who could persuade Hastings or tell him he was making a mistake were around anymore.

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Data can foretell the story, but you can be premature with the conclusions. Netflix's internal data showed that interest in the DVD business was waning. However, the DVD business was still a cash cow that could be milked. It's obvious that Netflix's future was streaming media and acquiring rights to content. The cash cow that could have paid for the streaming future was the DVD business. Netflix apparently failed to stress test its assumptions on the price increases and rejiggering of the DVD business. The shocking thing about Netflix's DVD business issue is that it had a case study called AOL. AOL is an ad-based business, but still milks its Internet access unit. And yes, people still get access through AOL.

Misreading the customer base. Hastings biggest issue was that he flubbed customer communications. He was sorry that he upset subscribers, but bet that they wouldn't cancel the service. Netflix's message: We upset you, but you still need me. Netflix was like a husband daring his wife to leave him.

Whether Netflix fully recovers remains to be seen. One thing is certain, business school students will be examining Netflix's lost year for a long time.

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Topic: CXO

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16 comments
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  • Not completely sold on Netflix

    I'm still not completely sold on the future of Netflix. I was, and remain, a Netflix subscriber since before this debacle. However, I never used the DVD service, so when they announced they were moving to a subscribing model I wasn't bothered in the least. Unfortunately, at the same time, their catalog of streaming started to shrink significantly. Even now, I still run into offerings where some episodes are only available on DVD. I'm not sure I'm going to be a subscriber for much longer.
    roteague
  • Treating customers poorly

    "Hey! We're going to charge you double for the same service you've been getting!"

    Then with Starz videos removed from the online-only option, Netflix suddenly had a lot fewer movies we wanted to see. There are a lot more old TV shows, but they aren't attractive to us.



    Right now we're Netflix subscribers out of laziness. It's an autopay from our credit union account. But one day Amazon, a new player, possibly even the dreaded Blockbuster, will come along with a special or a new service that will lure us away from Netflix. It's only a matter of time.
    robin@...
    • Blockbuster?

      Those pigs are still around?

      lol...

      Well I guess since Real Networks and AOL are hanging with the bottom-fed...

      ~

      Shame about Netflix, though.
      CaviarBlack
    • Netflix still has strengths

      Both of my kids enjoy the selection shows Netflix has from Dora The Explorer, Wheels On The Bus, Arthur, Go Diego Go, Barney, etc. They will be around for a while.
      DonRupertBitByte
  • I had to stick it to the "man" ...

    I cut Netflix off for one simple reason: I refuse to accept half the service regardless if I use all the features of the service or not. I come home in the evenings and enter through the garage. I use my bedroom, bathroom, kitchen and desk. Imagine the landlord restricting access to the rest of my rental property and expecting me to pay the full initial rental amount. If I had signed on with the current terms in place then I'd understand - it is what it is. But I didn't.
    dadda_mac
  • Netflix Can Burn

    I was a loyal Netflix customer for years. They obviously don't mind screwing their customers, so I fired them. I won't go back. They can burn.
    M.M.Grimes
    • yeah I fired them too

      So I liked having a DVD on the coffee table ready to go. But, I could not find anything else to put in my que last time it was empty. Streaming old old movies and TV shows I never watch was just useless. SO BYE BYE>
      davidmpaul
  • International Expasion

    International Expansion trying to undercut the dominant Amazon Owned LoveFilm in Europe, who still happily do physical Game/DVD rental as well as streaming, is another distraction and money pit.
    neil.postlethwaite
  • They're clueless

    The first thing that led me to understand that they were clueless is their bragging about their technical infrastructure in their corporate bios while being unable to deliver effective parental controls. I canceled them soon after signing up because they obviously had ZERO real concern over this issue. I say "real concern" because they do have something in place, but it is lame and totally inadequate. Yet it's not a hard issue to handle. Mainly, they just seem to take a "screw you" attitude toward their customers.
    GTGeek88
  • yep they screwed up

    but it's still a fraction of cable or sat and no reruns.
    LarsDennert
  • I hate their ads

    I don't subscribe to netflix because of the pop under ads for netflix that my browser spawns on my local news site. It annoys me and I don't do business with companies that annoy me. I just got a new TV with netflix built in so it's tempting but then up pops another ad...
    GrumpyOldMan
  • Haven't Looked Back...

    I left Netflix, and don't miss them at all. Hastings = Greed. So typical.
    Fyrewerx
  • Isn't Netflix the site which told us that, they had over 1 billion hours

    of viewing by people last month?

    Netflixx may have had it's problems, but, 1 billion hours is not a flop nor a problem; not in my book.

    Somebody estimated that, if that kind of viewing were to be converted into TV viewing hours, that Netflix would be the number one TV station in the world.

    "Netflix now has 26.5 million worldwide subscribers to its streaming service, more than the 22.3 million TV subscribers at the leading cable provider, Comcast Corp. "

    http://www.sfltimes.com/index.php?option=com_content&task=view&id=10407&Itemid=331

    Netflix may have screwed up last year, and may have temporarily lost a lot of goodwill with its subscribers, but, as indicated in the above report, they're not failing at all, and could be positioned for much better years ahead.

    BTW, I'm not a subscriber, and don't plan to be, and I don't own any stock in the company; I'm just being realistic.
    adornoe
  • Until Hastings is gone...

    I am no longer a subscriber to Netflix.
    pdarnold@...
  • NetFlix who?

    As a long time subscriber that actually looked forward to that DVD in the mail, I no longer subscribe to this service. $2. extra each month for a blueray disk to show off my new TV and blueray player is a joke. Do you stream blueray quality? I wouldn't know. I'm not going to pay all that anyways. I liked the disk because I could take it traveling. Streaming a few between mailings was great but not without interruptions that were blamed on my service provider.

    If I were streaming for a mob watch this might be doable but for now Netflix told me to take a hike and not having a learning disability, I'm happy with my new hiking shoes now. They have nothing to do with that corporate management style and never will.
    2feral
  • Love Netflix, wish it were international

    I've been a subscriber for years, and love the service. I have had to drop from 2 to 1 DVD out at a time because there simply aren't enough hours to watch & the DVD's sat for too long. Also, sometimes your queue brings a serious DVD and you're in the mood for comedy. I like that they have moved more content to streaming. Farscape and STDS9 anytime! I don't use it everyday, but then again, I probably don't watch enough cable to justify my subscriptions. And Netflix is way cheaper than cable. I've heard of people giving up cable, keeping Netflix and watching TV online. One thing: why can't you get Netflix in Europe? I've had visiting family who fell in love with Netflix, but were unable to get it in Europe.
    sam8988378