Posted September 19, 2011 4:24 pm by with 6 comments

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“I messed up. I owe everyone an explanation.”

Two months ago, Netflix Co-Founder and CEO Reed Hastings, announced a major change to the pricing structure for Netflix members which included increased fees for anyone wanting to get DVDs in the mail and stream movies.The result was a lot of bad press as loyal fans cried foul loud enough to be heard. Memberships were canceled, stock prices dropped and Blockbuster could be heard laughing all the way to bankruptcy court.

Yesterday, Hastings tried to patch things up with a lengthy note of apology and an explanation of things to come.

“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) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

This is good forward thinking on his part, and certainly true seeing as what happened to their competition. He goes on to say,

When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication.”

Wait. So what he’s saying here is, I should have kept my mouth shut and slowly made changes, sneaking them into the system so no one noticed. Kind of like how restaurants are serving smaller portions but charging the same price or how Facebook keeps changing my sidebar links.

Surely this isn’t good business, is it?

So Hastings went against his own better judgement and announced on his blog that Netflix will soon split into two companies. One will serve only streaming content (Netflix) and the other will continue the DVD by mail program (Qwikster). Now, in order to get both services, you’ll have to pay two fees to two different companies, maintain two profiles and any reviews you leave will not cross-over to the other site.

That’s the way to win back an audience! Yikes.

As you can imagine, the response has been mostly ugly. Maybe he should have apologized in one post and announced Qwikster in another? Would any kind of an apology that didn’t include a price roll-back be acceptable? Probably not. And therein lies the problem.

It’s important to manage one’s reputation but is a public apology for anything short of breaking the law really necessary? Or a good thing? Netflix made a plan for the protection of their own business and they needed to stick by it. Raising prices is not a crime. Especially not when it includes an additional set of features. So what went wrong?

The trouble is, people don’t deal well with change and that’s something you need to think about when you’re about to make one. Send out an email to your customers with an explanation before you need to send an apology and know that some people aren’t going to like it. In the case of Netflix, they’ll lose some of their customers, but with proper marketing of the new streaming service, they’ll likely gain customers who aren’t interested in mailed DVDs.

I say, no apologies are needed. Business is tough all over and a company has to do what a company has to do. What do you say? Is it good to admit your mistakes to your customers or is it better to privately fix it and move on?

  • AnitaN

    I disagree that Netflix doesn’t owe it’s customers an apology! The had just raised prices a mere 3 months earlier, giving less for at least $3 more per month. The company should have waited 9 more months before splitting the two services! I quit streaming, as a result, and I may quit DVD’s shortly! It isn’t worth the money or the aggravation

  • dean

    Actually, the whiners owe me an apology for cluttering my twitter stream with their discontent. Quit yer belly achin’ and quit the service if you don’t like the changes.

    • @Dean – How do you really feel? It’s good, as always, to hear your sunny outlook on this matter!

      • dean

        Fact is Frank, complaining on social media only works when you are trying to overthrow a Mid-East Dictatorship. Corporate America is immune to it 😉

  • I have mixed feelings. To whether to apologize or not, I would say if you feel you made a mistake you should own up to it and take responsibility. Don’t make excuses just accept responsibilities. I was a little apposed to the rate hike, but if you think about what you pay for cable, how bad is the rate? I get what I want when I want it for considerable cheaper than most cable/satellite services. So do I like the rate increase, no, do I understand it, yes.

    • Cynthia Boris

      But what’s an apology when you say, I’m wrong, but I’m right because we’re still raising prices?