The End of Netflix’s Negative News Cycle—For Now

Netflix has decided to abandon its month-old service break-up plan, announcing Monday morning that it will keep its DVD-by-mail and online streaming services together under one name and one Web site, which will finally quell many of the service's new critics. 

“We underestimated the appeal of the single Web site and a single service,” said Netflix spokesman Steve Swasey in a telephone interview with The New York Times. He quickly added: “We greatly underestimated it.”

In a statement posted Monday morning on Netflix's blog, CEO Reed Hastings said, “Consumers value the simplicity Netflix has always offered and we respect that. There is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case.” Hastings also said, "While the July price change was necessary, we are now done with price changes."

Netfflix's Sept. 18 announcement that it planned to separate its DVD and Web streaming packages prompted anger among its customers, some of whom were already incensed by a price hike to $16 from $10 for those who receive both DVDs and streaming—an increase which will remain in place, says The Times. Netflix tried to be crystal-clear about it, issuing a press release that was titled "DVDs Will Be Staying at Netflix.com" and sending e-mails to subscribers about the news.

Richard Levick, president and CEO of Levick Strategic Communications, admires Hastings for his open communication strategy and says that the Netflix's decision to alter the customer experience hurt them more than the price increase.  

Netflix's early rival, Blockbuster, made all the wrong moves, says Levick, and Netflix—once the David to Blockbuster's Goliath—did everything right. "What they're trying to do is get rid of their "typewriter business" and their now-ancient DVDs," says Levick. "It's just like Steve Jobs once said: "The customer doesn't know what they want.' If technology companies strictly followed what their customers wanted, they'd build a better candle—not a lightbulb."

Levick says It's up to technology companies to educate, inform and lead, but no so far that they outpace their customers, and that's what Netflix was guilty of—they out-visioned their own customers. 

Noting that Netflix has taken a lot of slings and arrows over the past month, Levick says that Hastings has been humble, open and transparent and apologetic, and that he should be commended. "He has also done something in this political environment that took courage—he said he made a mistake, and changed—and I admire him for that."

Levick says that Hastings has made so many brilliant business choices over the years, and believes that he will continue to do so as CEO. "They felt Netflix needed to do this splitting-off of services because they have more competition nipping at their heals with Apple, Amazon and others now in the business of streaming video. But, they apparently moved too fast with this decision. However, had he moved too slowly, they could've changed the Netflix name to Blockbuster," says Levick. "They may have moved a little bit too quickly, but I can't be overly critical for that." 

Had Netflix made Qwikster part of its existing site so users wouldn't have to make a second account profile, people would have trusted accessing the familiar, secure sever with a single account name, says Levick. "I think the act of splitting, more than the price increase—which was necessary—is what bothered customers," says Levick. "By splitting Qwikster into a second service, they did what Coke did with its New Coke in 1985, which consumers rejected because they didn't want to lose their trusted red and white can. People simply didn't want to lose Netflix's trusted red and white Web site and envelopes."

"Hastings is now competing with with cable TV networks for subscribers, so he needs to be careful about when he says 'this is the end of price increases.' I hope he meant that only for a while," says Levick. As Netflix continues to grow and amass a bigger content library, they will be in a great position to lower the cost of movie and television products as compared to a cable TV subscription, but they will likely want to increasing the price of their product as its grows. Perhaps then the company will come under scrutiny for not abiding by Hasting's original promise, but for now its customers can rejoice in having their demands met.