Is your company facing an existential threat from a looming technology shift? If so, Netflix CEO Reed Hastings has some suggestions, like don’t forget about the customers you already have while figuring out how to attract new ones. Speaking today at the Code Conference in Rancho Palos Verdes, CA, Hastings said Netflix was too concerned with the wrong issues when it spun off its DVD-by-mail business in 2011 to focus on online movie delivery. “In hindsight, we were so focused on not dying with DVD,” he said. “We looked at all these businesses [with collapsing business models] like Kodak and Blockbuster. It was really a hard problem.”
Related: Reed Hastings: “We Have No Power” In Comcast Dealings
Netflix created a new unit called Qwikster for the DVD-by-mail business, while keeping online delivery under the Netflix name. People who still wanted both physical discs and streaming options had to set up a separate account for each. “It turned out it didn’t work out at all,” Hastings said. “We mispredicted a number of factors.” Like charging more to have both accounts. “It turned out that approach really annoyed customers,” the exec said. “We learned an important lesson: The fact that your company may not be strategically positioned for the next 10 years, [customers] don’t care about that.”
Related: Is Netflix Closing In On Broadcast Networks In Total Viewing? Read More »
Netflix Ditches Qwikster, Will Keep DVD Rentals at Netflix.com
Can Netflix executives do anything to rekindle Wall Street’s affection? It appears not, or at least not yet: Netflix was one of the media business’ few losers on Monday with shares falling 4.8% to $111.62. The decline stood out on a day when the benchmark S&P 500 was up 3.4%, and U.S. media stocks were up more than 4%. Traders soured quickly on Netflix after rewarding it with a 7% pop at the opening bell. They liked the fact that Netflix abandoned its plan to split its DVD rental business into a separate operation called Qwikster. But the flip-flop seemed to reinforce concerns that CEO Reed Hastings has lost his sense of direction. Netflix has lost nearly 63% of its value since mid-July when it announced that consumers would have to pay 60% more to continue receiving its service that offered DVD rentals as well as video streaming.
The flip-flops continue at beleaguered Netflix. CEO Reed Hastings says today in a blog post that “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password … in other words, no Qwikster.” He says that Netflix is sticking by its decision in July to raise prices by 60% for subscribers who want to continue to both stream videos and rent DVDs, but adds that ”we are now done with price changes.” The consumer backlash to that new pricing kicked off a three-month period during which Netflix’s market value fell by 60% — about $10B. The company said last month that it expected to report that its 3Q subscriptions would be about 1M lower than it had projected. Hastings hoped to stop the bleeding on Sept. 18: He apologized for the way he announced the price increase and unveiled his plan to give the weakening DVD rental business a new identity. The newly renamed Qwikster would add video game rentals to the mix and have its own CEO, Andy Rendich. “Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail,” Hastings said at the time. “It is possible we are moving too fast — it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States.” Lots of consumers, though, found the arrangement confusing, while investors wondered whether Hastings was simply preparing to sell his DVD rental business.
Wall Street was reassured by today’s announcement, which comes just as some analysts say that Netflix’s share price is low enough to consider buying again. The stock is up more than 7% in early trading. Just prior to Netflix’s announcement one of its toughest critics, Janney Capital Markets analyst Tony Wible, upgraded his recommendation to “neutral” from “sell.” He says that “Management is under immense pressure to revive interest in the stock and will likely use 3Q11 earnings to rebuild confidence any way they can, especially if they are looking to sell the company.” Netflix will report its 3Q earnings on Oct. 24. Goldman Sachs’ Ingrid Chung says that while “today’s retreat from separating the websites shows how little testing had gone into the launch of Qwikster, we believe that the more humbled management team will be more thoughtful going forward.” Lazard Capital Markets’ Barton Crockett calls the decision to drop Qwikster “clearly, a good idea” but adds that it isn’t enough to make up for the declining popularity of DVDs, and Netflix’s price hike. He adds that the company’s “very visible waffling also likely dinged domestic momentum near-term.”
Here’s today’s release about the end of Qwikster: Read More »
Netflix CFO David Wells acknowledged today that “we’re a more humble team” following the consumer and investor backlash from a series of PR blunders. The company plans to ”step back and look at all options and what we’ll do going forward” to satisfy consumers who were angered in July when the company said it would split its video streaming and DVD rental services — increasing prices by 60% for those who wanted to continue to have both. Lowering the price doesn’t seem to be on the table. That’s “a little bit like kicking the can down the road,” Wells said at the Goldman Sachs Communicopia Conference. “I don’t think it’s going to win back the customers we lost.” Instead, Netflix likely will secure more content and “repair that trust with the consumer over time.” Defections spiked shortly after the announcement, “but it went to zero shortly afterward.” The recent decision to rebrand the DVD business as Qwikster ”introduced additional volatility into the consumer picture.” But the decision to have Qwikster also rent video games is “a signal that we’re continuing to invest and not abandon that consumer.” Read More »
Reed Hastings’ Apology Fails To Stop Stock Slide
Hastings Says “I Messed Up”; DVD Unit Will Split, Rebrand As Qwikster
The Netflix situation is becoming scary. The stock was down another 9.4% today, to $129.66. That means the company has lost 55.4% of its value since July 11, the day before it announced its decision to split the streaming video service from DVD rentals — upping the subscription price by 60% for those who still want both. Yesterday, CEO Reed Hastings apologized for his PR blunder by trying to gloss over that fact. He adding that the DVD-rental business will have a new name, Qwikster, and begin to rent video games as well. How low can Netflix go? Read More »
Netflix CEO Reed Hastings had better hope that consumers are more forgiving than Wall Street. The company’s shares fell 7.4% on Monday following Hastings’ mea culpa for botching the roll out of Netflix’s decision in July to separate its streaming business from DVD rentals — he tried to gloss over the fact that it would raise prices by 60% for half of his customers, who want both. He also disclosed today that DVDs will be handled by a new stand-alone unit called Qwikster that will begin to rent games for XBox 360, PlayStation 3, and Wii consoles. Netflix’ closing price of $143.75 is about half of what it was just before the July announcement, and down $64.96 from last Wednesday before the company said that its subscriber numbers for 3Q would be lower than it had forecast.
Savvy company watchers say they believe Hastings is scrambling to fix Netflix’ image because its board or large investors — or perhaps both — are becoming panicked. They have a lot riding on the belief that Netflix will remain the Internet’s leading alternative to cable TV and soar as broadband video becomes ubiquitous. Even after the recent drop in value, Netflix stock trades for an extraordinary 21 times expected earnings — nearly twice the multiple for most media companies. That means most of its value comes from investors’ faith that Netflix will become far more profitable than it is now.
But Hastings’ PR blunder … Read More »
Netflix CEO Reed Hastings apologized to customers late today and announced that Netflix will split its DVD and streaming video businesses and rebrand the DVD division. “In hindsight, I slid into arrogance based upon past success,” Hastings admitted in a blog post. He had to do something to win back his customers and stem his stock slide. Netflix has been under fire since it instituted a 60% price hike for its DVD and streaming video services. The change sparked a social media revolt and dropped its stock by nearly 50%. The company suffered another setback earlier this month, when Starz announced it would not be renewing its deal, which will mean Disney and Sony pictures won’t be available in 2012. “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,” Hastings added. Read More »