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Netflix: The Saga of a Company that Needs Your Love

Oct 17, 2011 1:49 PM, by Jason Bovberg

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Netflix finally came to a point at which it was facing a new reality. Competition was rising, and distributors were no longer so amenable to low, low rental fees in the face of giant Netflix profits. One big distributor in particular was on the chopping block. And it goes without saying that customers had become—let's not use the word spoiled, but instead let’s just say we all became quite comfortable with the extreme bargain we were collectively enjoying.

How would Netflix raise prices in such an environment? Gradually, right? Explain the situation from a common-sense position, and gently introduce new tiers of pricing over time. Be realistic. Customers would understand.

Well, we all know what happened. The sudden announcement came as a slap in the face to Netflix's comfortable audience, and they started canceling subscriptions. In a remarkably short amount of time, one of the most beloved of all media companies became despised!

Perhaps feeling that his company could do no wrong, CEO Reed Hastings could only stare at this change of fortune in a state of shock. And perhaps in a misguided attempt to clarify the new business model, he quickly announced that he would be separating the DVD-by-mail service from the streaming service, and labeling the new physical-media company Qwikster.

If the price increase was a slap to the face, this move was the mortal blow to the chest—or, would have been, had the decision remained in effect. At a vulnerable moment when Netflix was witnessing a fracture of its business, its solution was to actively take part in the fracture and increase the injury? It wanted to actually remove its tried-and-tested brand from half of its movie service? Blood was already seeping, and now it threatened to gush.

In an almost immediate attempt to stanch the flow, Hastings pulled back on the Qwikster decision, perhaps saving the life of Netflix.

But Netflix is still in a tough situation. It now faces not only the new market situation that had become a reality before its back-to-back bungled announcements, but also a new reality of customer mistrust and volatility. If only the company had just been honest from the start!

Streaming content ain't a cheap proposition. And mailing discs is increasingly expensive. You can practically feel Hastings' anguish at these new realities. He's got a mob of about 20 million members glaring at him—customers who recently loved him!—and they’re all just waiting for more bad news. These people used to constantly recommend his service, and now nobody does.

Personally, I've moved to a more forgiving, understanding stance. I've kept both my streaming and Blu-by-mail options, and I've educated myself about the distributions costs that Netflix faces. I'm happy to pay the price for that content—and even more, as the streaming selection increases. And I'm more than happy to hang on to that disc-by-mail option, which continues to be the most essential aspect of Netflix to me.

I just can't help but feel bad for Mr. Hastings, who made an all-too-human error and will suffer the consequences of that error for too long.

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