Netflix says it’s sorry, then creates new uproar
Monday, September 19, 2011
SAN FRANCISCO (AP) — The CEO of Netflix said he was sorry for mishandling a recent price increase that caused customers to cancel the service in droves. But the apology was drowned out by a decision that angered subscribers all over again.
The company will split into two services — one with an odd new name that offers the familiar discs in red envelopes and another for online streaming of TV shows and movies.
The DVD service will be called Qwikster, a name that is supposed to signify a commitment to fast service but quickly became an object of ridicule Monday on the Internet. The streaming service will keep the Netflix name.
Netflix, which had 24.6 million U.S. subscribers at the end of June and is the nation’s largest video subscription service, redefined home entertainment over the past decade with its DVDs by mail. Now it’s trying to prepare for the day when watching movies on a disc goes the way of driving to the video store to pick up a VHS tape.
But lately, it has bungled the transition. The company has lost half its market value since July, when it announced that customers who wanted DVDs and streaming had to pay for them separately — and pay up to 60 percent more.
The decision to rebrand the best-known part of Netflix’s business left some experts wondering if CEO Reed Hastings is losing the touch that established him as an influential figure in technology and entertainment.
Others see the logic in trying to make sure Netflix keeps a thriving business as customers abandon DVDs and shift in greater numbers to beaming movies and TV shows into their living rooms over high-speed Internet connections.
It’s going to be a painful transition, as Hastings acknowledged as he cut loose the DVD service.
“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,” Hastings wrote on a Netflix blog.
The CEO of the rechristened Qwikster service will be Andy Rendich, a longtime Netflix employee.
Hastings found little sympathy among the more than 10,000 people who commented on the posting.
Most of them lambasted him for making life more difficult for about 12 million customers who get both streaming and DVD rentals. Those people will have to visit two websites to make requests and update their billing information.
Other critics questioned the sincerity of his apology for the recent price increase and ripped him for giving DVD rentals a different identity — and for the name Qwikster in particular.
Columbia Business School marketing professor Brett Gordon thinks Hastings knows exactly what he’s doing by starting to bury the DVD business, even if Hastings didn’t say it in his blog post.
“They don’t want the Netflix brand to be damaged by the inevitable death of physical digital goods,” Gordon said.
Netflix was a Wall Street star until the jarring July 12 price announcement. Its stock rose from about $50 at the beginning of 2009 to more than $300 in early July. Since the price backlash, Netflix’s market value has plummeted, wiping out about $8 billion in stockholder wealth. On Monday, the stock shed more than $11 to close at $143.75.
Hastings said his biggest fear is that Netflix will be left behind by technological upheaval, like what happened to AOL when people switched from dial-up Internet to widely available broadband, or Borders when readers gravitated to the e-book.
Netflix itself has killed off thousands of video rental stores during the past five years, and it devastated Blockbuster, which once dominated the home-video market and went bankrupt last year.