Pogue’s Posts: Parsing Netflix’s ‘Apology’

Qwikster.com, via Associated PressNetflix is about to break off its DVD-by-mail feature into a completely separate entity, called Qwikster.

In 2001, I wrote about a then-little known company called Netflix. Reading it now, I can’t help smiling. Ah, sweet naïveté!

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“At a recent dinner with some old magazine-industry friends, I was amazed to discover that three of them were all raving fans of something called Netflix.com,” I wrote. “Turns out Netflix is a DVD rental service.

“For $20 per month, you can rent as many DVD movies as you can stand to watch. You can even keep them as long as you want, with a maximum of three movies checked out at a time; if you want to keep ‘The Mummy’ out all year long, go for it.”

I noted, tongue in cheek, that I was plugging Netflix out of self-interest. “I’m determined to spread the word about this ingenious program in every way I can. Netflix has 300,000 subscribers, but needs another 200,000 to break even — and I don’t ever want it to go away.”

The best part is the conclusion of that column, where I called Netflix “a shining example of a dot-com that’s still in business because it’s an indisputable consumer win, not just a greed play.”

O.K., I stand corrected.

In July, Netflix enraged its 25 million customers by abruptly jacking up the price of its DVD plus streaming-movies plan by 60 percent — from $10 a month to $16.

When I wrote about the turnabout, I noted that the most frustrating part was the incomprehensible explanation that Netflix provided. “We have realized that there is still a very large continuing demand for DVDs both from our existing members as well as nonmembers. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.”

O.K., what?

In any case, Netflix subscribers were furious. In a matter of weeks, one million of them canceled their memberships.

So a few days ago, Reed Hastings, Netflix’s chief executive, sent Netflix members an e-mail message that got off to a good start. Mine read:

“Dear David, I messed up. I owe you an explanation.

“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. Let me explain what we are doing.”

Ah. O.K., good. We’ve seen this movie before. Corporation bumbles, apologizes, makes things right. Business schools take note. Life goes on.

But this time, Mr. Hastings did not follow the formula. He only pretended to.

He goes on to say that the new higher prices will stick — and, worse, Netflix is about to break off its DVD-by-mail feature into a completely separate entity, called Qwikster.

Qwikster will require you to visit a separate Web site. Separate credit card bill. Separate movie catalog. Separate movie queue (the list of movies you want to see.)

(It didn’t take long for astonished Internet citizens to discover that the Twitter name @qwikster is already taken — by a rather foul-mouthed young man.)

I could not have put my reaction any better than this e-mail from a reader:

Netflix’s split into Qwikster is ridiculous. I wasn’t mad at them before; I am now. I don’t want two companies, two credit card charges, two Web sites, two logins, and TWO queues to maintain.

Now I have to add movies to both an instant and a DVD queue? I have to check both sites to see whether a film’s available by instant or by DVD? I have to sync my iOS devices to two different services for instant film delivery and queue management?

This is ridiculous. Life’s complicated enough already. Netflix (excuse me, “Qwikster”) just made it worse. Does Mr. Hastings thinks we’re idiots? Making it two companies, with two charges, doesn’t change the essential price dynamics; we can add.

Netflix just violated the first principle of good business: it solved ITS problem, not ours. This is the worst American marketing decision since New Coke, and I hope it’s reversed just as quickly.

I confess: I’m utterly baffled.

At why Netflix, long hailed for its masterfully gracious customer focus, has suddenly become tone-deaf to the effects of its clumsy elephant-in-a-china-shop maneuvers.

At the reasons behind all of these shenanigans. Yes, of course, fewer people use DVDs, but come on, they haven’t all fallen off a cliff simultaneously.

At why Mr. Hastings thinks it helps to say “I messed up” without actually making things right. That’s one of the hollowest apologies I’ve ever heard. It’s lip service. It’s like the politician who says, “I’m sorry you feel that way.” You’re not sorry — in fact, you’re still insisting that you’re right.

In the end, though, what makes me unhappiest is how calculated all of this feels. In July, a spokesman told me that Netflix had already taken the subscriber defection into account in its financial forecasts.
And sure enough. When I tweeted that Netflix had lost one million of its 25 million customers, @npe9 nailed it when he wrote:

“It damages their brand and images, but 24 million customers paying $16 is still better than 25 million @ $10. Increases revenue by 50%.”

Yes, Mr. Hastings, you did mess up.

Twice.

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