Netflix struggles to get it right
In July, when Netflix first announced its changes in pricing structures, establishing separate rates for streaming and DVD rentals, the company promptly lost a million subscribers and a big chunk of its stock value. Late Sunday night, Netflix CEO Reed Hastings weathered a little web-based fit of contrition, writing in his blog, ““I messed up. I owe everyone an explanation.” More than a few disgruntled and disaffected customers responded with the suggestion, “You owe us rebates, coupons, and special promotions, Reed.”
The CEO’s mea culpa had neither cash value nor much impact on Wall Street, but it did come with the headline-making announcement that Netflix will split into separate and distinct operations. Retaining the business’s original name, Netflix streaming video operations will go ahead full-steam, adding new content to replace what it lost when its contract with Starz media recently expired, and continuing negotiations to secure more network and high-end cable content. The so-called “legacy” DVD business will become “qwikster.com,” adding game rentals to its services. The name change and home-office restructuring will have no impact on current customers’ accounts and queues.
Tech analyst Andrew Shigeru explains: “Although it’s unfortunate Netflix had to endure so much pain and heartbreak as it prepared for restructuring, the move makes perfect sense. More than two million cable subscribers have cancelled in the last few months, getting all their favorite programs from the web. Streaming video soon will make DVDs obsolete, so that the restructuring enables Netflix efficiently to phase-out the legacy business and move into new media ventures.”
Unrepentant about July’s dramatic price increases announced shortly after the company’s commitment to improved service and increased earnings, Hastings wrote in his blog, ““[Netflix] 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,” he wrote. Assuring customers would see no more price increase in the foreseeable future, he declared he had no regrets about his company’s decisions to restructure delivery systems and prices.
