September 20, 2011

Netflix CEO Admits He Fell Victim To “Arrogance” and Poor Communication When He Announced Rate Hike and Division Of DVD-By-Mail Service and Instant Viewing, Which Cause Subscriber Exodus and Huge Stock Tumble

Looking back on when Netflix announced in August that it would separate the pricing for online video streaming and DVDs — resulting in a hike of up to 60% for people who utilize both options — CEO Reed Hastings now admits that he had fallen victim to "arrogance” as he and his staff witnessed customers leaving in droves and the company's stock price plummet. In a blog post over the weekend, Hastings defended the policy, which he said will generate more revenue and lower shipping costs so the company can spend more acquiring digital rights to movies and television series, but he admitted that poor communication was a big part of the problem. "In hindsight, I slid into arrogance based upon past success. Inside Netflix I say, 'Actions speak louder than words,' and we should just keep improving our service,” he wrote. "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." The self-analysis accompanied the announcement that its DVD-by-mail service will get a new name, Qwikster, and add the option to order video games along with movies. The company will keep the name Netflix for its streaming business, the LA Times reports.

When the price hike was announced over the summer, many customers were outraged, and last week Netflix disclosed that it is on track to lose 600,000 subscribers in the current quarter, after previously telling investors to expect that it would add 400,000. As a result, Netflix stock fell 26% in two days, equating to a loss of $2.6 billion in market value, the Times reports.

A new Qwikster website will launch within a few weeks, Hastings said, separating the company's DVD library and ordering process from the video streaming one. People who use both will have separate charges on their credit cards. The addition of video games to Qwikster is a change of policy for Netflix after the company for years denied that it was interested in adding titles for the Wii, Playstation 3 and Xbox 360 to its DVD collection. It also puts Qwikster into competition with Gamefly, the long-standing leader in subscription video games by mail, reports Times writer Ben Fritz.