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NetFlix Blames Tea Party and OWS for Meltdown

25 Oct

In what may rival the dumbest marketing decisions by a company in the past 50 years, NetFlix seems to want to compound the problem by blaming the consumers reaction to their raising rates on (of all people) the Tea Party and Occupy Wall Street…

Considering the share value of the company has dropped from a high of $300.00 in July to $87.00 yesterday – I think if I was sitting on a box full of NetFlix shares, the management would have to come up with a whole lot better story than that! The company has bled 800,000 customers since the fateful announcement that they could be nearly doubling their rates.

This one is bound for a “B” School Case Study right beside “New Coke” and Xerox’s “nobody wants those little copiers”.

I think the folks at RedBox are licking their chops at the idea NetFlix will exit the mail business.

Anyway – my view of the world is, that the only way you can sell the “cloud” and cloud based services to the public is if broadband access is free, reliable, and available to anyone – anywhere. If a guy can’t pay the mortgage, the cable bill isn’t far behind. And at rates going from $100-200 or more a month, the only “triple play” is the one where the carriers sock the consumer with a bunch of hidden charges every month on top of that advertised $99/month bill.

How Netflix Lost 800,000 Members, and Good Will

Reed Hastings was soaking in a hot tub with a friend last month when he shared a secret: his company, Netflix, was about to announce a plan to divide its movie rental service into two — one offering streaming movies over the Internet, the other offering old-fashioned DVDs in the mail.

“That is awful,” the friend, who was also a Netflix subscriber, told him under a starry sky in the Bay Area, according to Mr. Hastings. “I don’t want to deal with two accounts.”

Mr. Hastings ignored the warning, believing that chief executives should generally discount what their friends say.

He has since regretted it. Subscribers revolted and many dropped the service. The plan further tarnished a once widely respected Internet service that had already been wounded by an unpopular price increase in the summer. Mr. Hastings was forced to reverse the planned split — but not the price increase — three weeks later and apologized.

On Monday, the company revealed the damage that had been done. It told investors that it ended the third quarter of the year with 800,000 fewer subscribers in the United States than in the previous quarter, its first decline in years. The stock plummeted more than 25 percent in after-hours trading. [In regular trading Tuesday, the stock was down more than 30 percent by midday.]

Despite the decline in subscribers, the company did well financially in the quarter. It reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter. Revenue rose 49 percent to $822 million. Both revenue and income topped analysts’ expectations.

Like many other companies built in Silicon Valley, Netflix prides itself on its analytical, data-driven approach to making decisions. But it made a classic business misstep. In its reliance on data and long-term strategy, the company underestimated the unquantifiable emotions of subscribers who still want those little red envelopes, even if they forget to ever watch the DVDs inside.

Mr. Hastings said in an interview last week, his most detailed discussion yet of the bruising period, that he had been guilty of overconfidence and of “moving too quickly.” But he said he still believed — as do nearly all investors and analysts — that Netflix’s future lay not in DVDs but in streaming over the Internet. “We still need to move quickly in streaming,” he said.

Twice in the interview, Mr. Hastings linked the hostility toward Netflix’s price change and proposed breakup to the angry mood of the country, even citing the Tea Party and the Occupy Wall Street movement by name.

He said — and repeated it on a conference call for investors on Monday evening — that subscribers had been bothered more by the summer price shock than by the breakup plan. Until September, a combination of video streams and DVDs cost as little as $10 a month; now, that same package costs $16. “We are done with pricing changes,” Netflix said Monday in a letter to shareholders.

Mr. Hastings said he was not sure whether the plan to split the company had been presented to customer focus groups before it was made public. Mr. Hastings said he assumed it had been. But he said he did not recall what those focus groups had said about the plan.

He said Netflix was now trying to slow its decision-making to ensure that there was more room for debate about major changes at the company.

How Netflix came to be so out of touch with its customers is a cautionary tale for other companies that try to transform to new media from old. As the company’s streaming Internet service caught on with consumers, subscriber numbers soared and, with them, the company’s stock, rising ninefold from the start of 2009 to peak above $300 in July….

 
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Posted by on October 25, 2011 in The Post-Racial Life

 

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