Netflix CEO Now Sees Open Communication as Right Call

Netflix CEO Reed Hastings did something we don’t see often enough from top execs at large companies. Hastings admitted in a blog post yesterday that his recent decision to raise prices and separate DVD-by-mail and streaming services into different packages was mishandled.

“I messed up. I owe everyone an explanation,” is how Hastings opened the post.

He went on to explain that he was concerned Netflix would not be as successful in online streaming as the company had historically been in the DVD rental business. “Most companies that are great at something—like AOL dialup or Borders bookstores—do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business.”

Sounds a bit like the Marketing Myopia I mentioned in a recent post about Kodak. Netflix is in the entertainment business. The goal has to be to make their service as easy and convenient for their target audiences as possible. A good portion of Netflix subscribers wants both DVD and streaming services. Others want a more robust offering in streaming options.

“In hindsight, I slid into arrogance based upon past success,” Hastings went on to say. “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 price increase resulted in the cost of unlimited online streaming plus one DVD-by-mail to $16 per month from only $10. The New York Times reports that the increase has cost the company about 1 million of its 25 million customers and led Netflix stock price to fall by 15%.

The latest changes mean the DVD-by-mail service will be renamed Qwikster and will become part of a separate brand with its own management team. The price of the company’s services will not change.

“We’re done with that!” Mr. Hastings said.

The good news is Hastings took the transparent, open communication approach. He admitted he made a mistake and provided an explanation with his strategies to fix it.

On that front, his vision was right on.