You may have received a “reversal e-mail” this week from media titans Netflix, just days after launching their newly bifurcated delivery system with the addition of the mail-in-DVD division, Qwikster. To those patrons of Netflix who decried not just the accompanying price hike, but the new inconvenience of (imagine!) two accounts, two passwords, two queues, CEO Reed Hastings’ decision was certainly a move of public appeasement, saying: “This means no change: one website, one account, one password…in other words, no Qwikster. While the July price change was necessary, we are now done with price changes.”
Really, it was a question of simplicity. A company trailblazing the media market with offerings that surpass anything previously imaginable, harnesses the technological tide of video streaming, opening new opportunities for them to grow even more, and the question suddenly becomes not “How do we do our job well?” but “How do we quickly make the most of being the best?” Suddenly, because one’s concerns are pointed inward rather than outward, because of the fixed grip on some semblance of circumstantial control, something that was quite simple becomes quite complicated. When faced with growing demands, the spinning plates begin multiplying, and it’s very easy for panicked decision-making to take effect. This is the origin of numerous business failures. Analysts argue that it is a business leader’s lack of vision–i.e. Kodak, New Coke–psychologically, though, it seems to be an understandable response to expectations of the highest order. This is the cost of having the pearl of great price in a situation of seeming limitless success: in a panic, we tend to hoard what we’ve got and, in some form of anxious protectionism, make rash and complicated decisions we needn’t make, to fix what didn’t need fixing. Our propensity for complication naturally overrules any gracious tendency toward simplicity.
And then this happens–there’s an underestimation of what those complications will do to what used to be so simple. Excuses are made for the price hikes, the two websites, the new account, and the masses turn as though victims of an assault–and, just like that, the hero-to-zero of, well, you.
Netflix has always prided themselves on customer-first ingenuity, and whether or not their recanting of Qwikster was a move of self-protective appeasement or a decision made in earnest repentance (probably both), the honesty with which Hastings confronts the mistakes is uncommon. Here’s what the New York Times had to say:
The New Coke experiment lasted less than three months. Qwikster did not even make it make it out of the bottle.
In a swift reversal, Netflix said Monday that it had decided to keep its DVD-by-mail and online streaming services together under one name and one Web site, abandoning the breakup it had announced three weeks earlier.
The company, which will keep a recent 60 percent price increase in place, declared that it had moved too fast when it tried to spin-off the old-fashioned DVD service into a new company called Qwikster, angering many subscribers. “We underestimated the appeal of the single Web site and a single service,” Steve Swasey, a Netflix spokesman, said in an interview, before quickly adding: “We greatly underestimated it.”
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Some reacted on Monday by teasing Netflix and its chief executive, Reed Hastings, for being topsy-turvy, but many praised the company for, as Ingrid Chung of Goldman Sachs put it in an analysts’ note, “listening to its customers (finally) and working to fix its relationship” with them. On Monday morning, Netflix e-mailed people who recently canceled their accounts to tell them about the reversal.
Maybe, some said, after a season of spectacular missteps, Netflix has finally figured out how to communicate effectively about its future. Or maybe now the company is just saying what its subscribers want to hear — that those who want both online streams and DVDs won’t have to manage two accounts and pay two bills each month, after all.
Netflix stock, which has lost almost two-thirds of its value in the last three months, rose on the news on Monday morning, but declined in the afternoon, closing down 4.8 percent at $111.62.
Richard Greenfield, a media analyst for BTIG Capital, said in an e-mail message that Monday’s announcement was the “necessary reversal of a bad decision.”
“The key remaining question,” he said, “is ‘Why did they make the Qwikster decision in the first place?’ ”
Netflix said it never actually separated the services or started Qwikster. But the planned breakup was rooted in Mr. Hastings’ belief that DVDs and online streams have different cost structures and different consumer demographics.
In July, to address the structural underpinnings of the business, he announced that the company would start charging $8 a month for both its streaming service and its DVD service, a total of $16 a month for the combination. Previously, DVDs were a $2 add-on to the $8 streaming service. Of course, subscribers who only wanted one service or the other — most new subscribers only want the online streams — saw no price hike, but that fact was drowned out by the outcry.
Netflix expected some of its 25 million subscribers to cancel in the wake of the price change, but the cancellation rate exceeded expectations. The company said on Sept. 15 that it expected to report a quarterly decline of about one million in the third quarter, which ended on Sept. 30.
Still, it pressed forward, announcing the breakup plan the night of Sept. 17. “Companies rarely die from moving too fast, and they frequently die from moving too slowly,” Mr. Hastings wrote in a blog post that night. His implication then was that Netflix had to act aggressively to expand its fast-growing streaming service by severing its older, slower DVD-by-mail arm.
In a sentence that now seems like a bit of foreshadowing, Mr. Hastings also wrote, “It is possible we are moving too fast — it is hard to say.”
Tens of thousands spoke out against the plan on Netflix’s Web site and others, and Netflix stock slid sharply. Three days after the announcement, Mr. Hastings wrote in a Facebook status update, “In Wyoming with 10 investors at a ranch/retreat. I think I might need a food taster. I can hardly blame them.”
Then came the flip-flop, announced Monday. Mr. Hastings declined interview requests, but he said in a statement that “there is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.”
Mr. Swasey declined to comment on any involvement by the Netflix board in the decision to keep the two services together.Some of the details of the reversal are still being deduced. Netflix’s plan for Qwikster to rent video games may or may not move forward; Mr. Swasey said that it was “to be determined.”
On Netflix’s blog on Monday, some subscribers called for Mr. Hastings’ ouster, but others called him courageous for owning up to his mistakes. Wrote Sean Michael McCord, a systems engineer, “I was ready to call the whole thing ‘Quitster’ for me, but now I may just stick around for awhile longer.”
Some analysts suspect that Netflix’s third-quarter losses exceeded the company’s already-lowered expectations, but the company declined to comment Monday. It will report earnings and subscriber figures on Oct. 24.
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