I got an email this morning. Well, my name was on it, but apparently the same email was received by approximately 23,000,000 people.  It was an email which turned out to actually be a simple copy and paste job from Netflix’s Blog. (Really, James. Another Netflix post? Yeah, but hear me out on this one.)

I want to take a minute to deconstruct some of what Reed Hastings said, and why it was such a/another dismal failure on his part.

(The picture attached to this post is the screen capture from the new QWIKSTER.com service, but more on that in a moment.)

So, here is what Reed had to say.

I messed up. I owe everyone an explanation.

Now that’s a good start! True it’s a couple of months too late, and would have been much better heard if it had happened as a real response to customer feedback and before Netflix was forced to announce that it would lose Starz! content in February 2012.

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.

Unlike some who have responded on the Netflix blog, I appreciate what Reed says here. Yes, we felt that the price change, plan change, announcement of same and the way you loaded blog comments with scripted positive responses (“I love the price changes!” Please.) from Netflix employees was disrespectful… Wait a minute… maybe I don’t appreciate what you’re saying here, Reed. I (We, your customers) didn’t “feel” that you lacked respect and you humility… YOU LACKED RESPECT FOR YOUR CUSTOMERS!!!!

For the past five years, 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.

In all sincerity, Hastings is spot on here.

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

Similarly, I received another email this morning from the ocean informing me it was wet. Hastings is missing it here. Right now, the real elephant in the room is the issue of the loss of Starz content.  This is going to be a massive loss for Netflix, yet Hastings has remained virtually silent on how he can justify his claim that the streaming content will continue to be rich with the loss of better than 1000 titles overnight.

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. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.

This is probably the most honest part of this entire email.

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.

Let me decode: In retrospect, I still stand by what was an obviously terrible business choice, but I’ll explain to you why I’m sticking to my guns.

So here is what we are doing and why:

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

Here is the part to focus on: Hastings admits that the DVD subscription service is important because “nearly every movie ever made is published on DVD, plus lots of TV series.”  (This will be very important later) but he wrongly assumes that this is why customers “love” the DVD portion of the service.  It isn’t.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

Here, Hastings lets us know that, to Netflix, their focus is going to be improving their streaming service.  Again, that’s going to be complicated considering that, unless something drastic happens prior to February 2012, Netflix is going to lose ALL of Starz content (that includes Starz original programming, a LARGE backlog of films both classic and recent, SONY pictures content and ALL of the Disney content.  That means all of the Disney films, TV shows and series… all of it. If you’re a Netflix subscriber, go to the kids section and check out what kind of impact that’s going to be.), and, so far, Netflix has shown no hope of gaining content that will fill the gaping hole left by this exodus.

So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to “Qwikster”.

Hmmmm…. That sounds eerily similar to a “press release” written by yours truly…  It’s obvious that Hastings views DVD-by-mail service as something that will shortly be going the way of the dodo, so why doesn’t he just say that?!?

We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

I’m sorry, what… I fell asleep because that rationale was so boring. Also, I guess the Netflix research team did precious little research into brand development. (Warning! That link goes to the twitter account of someone who is absolutely NSFW)

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, and now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow.Another advantage of separate websites is simplicity for our members.Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.

So, now I have to deal with two different companies, essentially.  Thanks for making things easier.  And by making things easier, of course, I mean making things more complicated in every way possible.

There are no pricing changes (we’re done with that!).

(You really have to picture Hastings saying this with a kind of smug laugh)

Members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges.

Andy Rendich, who has been working on our DVD service for 12 years, and leading it for the last 4 years, will be the CEO of Qwikster. Andy and I made a short welcome video. (You’ll probably say we should avoid going into movie making after watching it.) We will let you know in a few weeks when the Qwikster.com website is up and ready. It is merely a renamed version of the Netflix DVD website, but with the addition of video games. You won’t have to do anything special if you subscribe to our DVD by mail service.

OH! You’re adding video games! That’s good.  Really.  Customers have been clamoring for that since Day 1! Oh… wait, you mean if I wanted to go to a DVD plan… I would pay the “reduced rate of $7.99/month, but if I wanted to add Blu-Ray, I would have to pay extra, and if I wanted to add video games I would have to pay extra over that.  Yeah… much easier.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you. We’ll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.

Yes, Mr. Hastings… That’s why your customers are so upset… We can’t get over the loss of our beloved Netflix logo. That’s what it is. It’s amazing how you really have a sense of what’s important to us.

Some members will likely feel that we shouldn’t split the businesses, and that we shouldn’t rename our DVD by mail service. Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast – it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further.

Again, I think this is legitimate. Here, Hastings is admitting that the focus is streaming. AND THAT IS FINE! But say that outright. Tell us you don’t want to have to deal with DVD-by-mail for much longer… we can handle that. Tell us that this move is the first step in a phase-out plan… we can handle that. What is making your customers upset, Hastings, is the spin you’re trying to put on all of this.

And, yes, they are moving too fast. I think that is beyond question. Whether Netflix will offer the “best streaming service for TV shows and movies” is easily debatable (if not an outright laughable claim).

I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust.We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

It pains me to say, but this is really a case of “Too Little Too Late!” The problem is that Netflix forgot a very important CS lesson: “Service” means “Serve US!” (Thank you, Hank Hill) You’re thinking about the business as a way to make money for yourself. The consequence is that you forgot to think like a consumer. The SOLE reason Netflix was on top of the game (Read: WAS) was the great benefit of combining a streaming service with a DVD option. That way the consumer gets streaming movies (not a super selection in terms of new releases, but a still big selection of film & TV to choose from) AND a selection of DVD’s for the things that AREN’T available for streaming.

THIS is why my family loved Netflix.  THIS is why we switched and never looked back, and, in fact, had nothing but the highest praise for Netflix – praise that sent many of our friends running to the company.  We loved the idea of watching A DVD, then sending it back, watching movies or whatever via streaming until the next DVD came. That was the GREAT APPEAL of Netflix. That’s gone now.

Splitting the plans up like this was pointless. It has had a HUGE negative impact. (remember those near $300 stock prices? How are you feeling about the $155 low? Most CEO’s would have been fired if the value of a stock dropped by half in the span of two months.), and you follow it up with this TLTL “apology.”

This picture is a three-month analysis of Netflix stock.  The circled point is the date of the Netflix announcement of the plan/price change.  The price of the stock that day was $298.73 per share, an all time high for Netflix.  Today, barely two months past, the stock is at $155.19 per share. That’s almost half. HALF!

I still have streaming, and I’ll keep it, at least for a while. But, Netflix/Qwikster, you have to know that it would have been a million times better for you to simply eat a giant piece of humble pie, say “WE WERE WRONG! SORRY! PLEASE COME BACK!” and reinstate things to their former situation.

I said before and I’ll say again, BAD BUSINESS, Netflix. I’m glad I sold my shares when I did.

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