Posted October 10, 2011 11:12 am by with 8 comments

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Netflix CEO Reed Hastings is one of those guys that lives a high profile business existence. He’s the CEO and chief promoter of Netflix, he is on the board of Facebok and more. You would think it might be lonely at the top like you hear. What he has experienced recently shows, however, is that there is plenty of room at the top these days for people to push and shove to try to knock someone down a few notches. Hastings knows.

The great “Price Change Debacle” of the past few months has tarnished the once stellar reputation of the content distribution player and today is the final mea culpa of a person that, at one time, seemed to be able to do no wrong with his business.

Today, in a post from the Netflix blog, Hastings is eating some online humble pie and doing what he absolutely has to to get the ship righted again for Netflix: listen to his customers. That means that Qwikster, the DVD only site, makes a quick exit.

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.

This means no change: one website, one account, one password… in other words, no Qwikster.

While the July price change was necessary, we are now done with price changes.

His first serving of humble pie was evident from his actions back in September. On the Netflix blog he explained how the company had screwed up.

I messed up. I owe everyone 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. I’ll try to explain how this happened.

This is an abject lesson in what corporate hubris can do in the age of consumer empowerment. Look at the stock performance over the past three months. That’s a 58% drop in value according to Google Finance. Ouch!

Reputation these days is a fragile thing. There are few that are immune to the wild swings that the new consumer power pendulum can make. Some that are currently impervious may be Mark Zuckerberg but that’s because a healthy amount of people just don’t like him anyway. Even in death we saw people writing of the shortcomings of Steve Jobs. Reputation today is a rough business.

Back to Netflix though. This 180 degree turn is one that will be a case study for business schools for years to come. It is likely that a year from now Netflix will be moving merrily along as its streaming business becomes stronger and the DVD side continues to fade.

What will likely not be forgotten however is how Reed Hastings handled this situation. In reputation terms, he may have cashed in many of his chips. Everything he does and says will be measured against the time he had to back pedal as fast as possible. People will keep this in the backs of their minds and the Internet will allow them to pull up this dalliance as if it happened right at the moment they need it.

Let this be a lesson. Be careful out there.

What impact do you think this whole process has had on the reputation of Netflix and Reed Hastings?

  • Have they announced what they’re doing with gaming rentals which was announced to launch with Qwikster?

  • @Mike – It appears as if whatever they do it will happen under the banner of Netflix. One site for all offerings.

  • Perhaps the business lesson here is something a bit different…

    Netflix originally splits DVDs & streaming and ups the price = people say, “this stinks!”.

    Then Netflix says they are going to branch DVDs off to their own site (no doubt to die a slow death and keep it from impacting the earnings growth of streaming) = people say, “this REALLY stinks!!!”

    Some time passes and Netflix says, “okay, we are listening to our customers and not branching off DVDs…but we’re keeping the price changes.” = people say, “yay, Netflix listened to us!”

    In the end, people are left with the original price change, but with an arguably less negative opinion about it and the stock starts to climb again.

    Orchestrated move? If it were Apple, I’d say yeah…but I honestly don’t think Netflix is smart enough to come up with that level of a misdirection.

    • Interesting take Shane. I am not above a good conspiracy theory take on anything especially in this world! Thanks for adding to the conversation.

    • I agree with everything Shane says except for the conspiracy part. Companies do not spend time trying to figure out ways to look bad so that they can look good.

      Among other things, the lesson learned is that even CEOs can do dumb things….in this case the strategy is rock solid – segue out of the DVD rental business (that is smart). The execution of that strategy was mindbogglingly stupid – especially on the heels of the price increase, whose wounds had not yet heeled.

      I would dearly pay to hear the story of how this plan was hatched along with the subsequent finger point meetings that undoubtedly followed.

    • Forgot to add this hilarious Netflix spoof SNL did BEFORE this most recent announcement.

  • Cynthia Boris

    You have to give him credit for seeing agreeing to undo what he’s done – especially after he made such a strong stand about how it was the best idea yet. However, I like Shane’s take. It does kind of make you forget about the price change that started the problem in the first place.

    While I doubt that was the plan from the start, I’m sure Netflix noticed that nice little side effect.

  • rose

    What Shane said could be what Netflix is really trying to do. I never thought about it that way. For me the price hike did it and I switched right away to Blockbuster. I have the Blockbuster Movie Pass through my provider/employer DISH Network for only $10 dollars a month and for new subscribers it is free for 12 months. I get streaming, DVD rentals, in-store exchanges, and games. I get Blu-ray DVDs and games at no extra charge and I also get new releases 28 days before Netflix offers them. There is nothing better then getting everything I want and it’s all on one bill.