Monday, September 19, 2011

Netflix CEO Issues Strange Apology Letter and Details New Interactive Business Model

SAN NARCISO, Calif. (Bennington Vale Evening Transcript) -- As the share price of Netflix stocks plunged over the last week, CEO Reed Hastings issued a public apology Monday saying, “I messed up.” But the letter seemed to have done little to quell the frustration felt by customers over the price hikes and separation of services. According to Hastings’ statement, users who continue to subscribe to both the video streaming and DVD by mail services will see two separate bills and a higher total price than they paid before. The once soaring company has lost a quarter of its value in the past week. Analysts are still studying the ongoing impact of these decisions on consumers. One of the issues, according to Netflix users, came from the letter itself, which they described as patronizing, dismissive, disingenuous and bizarre. Among Hastings’ reasons for the separation of services were squirrel infestations, job creation, human rights violations and billing clarity. A copy of the letter can be viewed here. A full transcript of the letter follows.

We’re Sorry You Hate Surprises
Dear Cherished Netflix User,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. Everyone loves a surprise, right? Christmas, birthday presents, an unexpected bonus at work? Well, that’s what I’d always thought. Turns out, I was wrong. Just springing a more efficient service offering on our customers didn’t lead to the same level of excitement I would’ve enjoyed. That was certainly not our intent, and I offer my sincere apology to American consumers who no longer appreciate happy surprises. Let me explain what we are doing, since you clearly couldn’t keep up.

For the past five years, my greatest fear at Netflix, apart from the infestation of squirrels that have infiltrated our warehouses to gnaw on expensive DVDs, has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something -- like AOL dialup or Borders bookstores or DeLorean Motor Company or Hulk Hogan’s Pastamania -- do not become great at new things people want (a vast selection of quality movies available for streaming, in our case). But we said, “damn the torpedoes,” and moved quickly into streaming. We’re pioneers; opening new frontiers doesn’t come without some risks and collateral damage (not to mention a few dead injuns and buffalo, LOL). Now we’re splitting the services and thereby increasing prices. This was really the right thing to do.

So here is what we are doing and why.

I realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently. Just look at Amazon. Sure, it’s got everything in the world under one roof, but it’s so overwhelming. How can shoppers ever find what they’re really looking for? They can’t. Just try searching for an off-beat, unknown, low-budget Hungarian documentary about the headcheese industry on Amazon. I dare you. What happens is that you have to wade through pages of new movies, new music, new books, appliances…jeez, what was I looking for again? Don’t know. Guess I’ll just buy a $5 copy of Kanye’s latest CD although I don’t need it. What I needed was an obscure, indie documentary about headcheese from Eastern Europe. But on Netflix, it showed up under New Arrivals this very afternoon.

Here’s the other thing about Amazon. It kills American jobs. Well, we at Netflix fancy ourselves job creators. This economy sucks. I’m not saying anything you don’t already know. Which is partly why we had to raise prices. Exterminators are expensive. And until we kill off this marauding horde of DVD-hungry squirrels, we can’t commit to delivering undamaged DVDs. But I digress.

The U.S. Postal Service, as many of you know, is virtually bankrupt. We use the USPS to deliver our DVDs to you. We’re keeping these people in business. We’re almost single-handedly saving an entire industry -- an American institution, if you will. Amazon’s not. They’re using FedEx and UPS, I’ve heard, and their distribution hubs exploit under-aged child labor from places like Saipan, where pre-pubescent workers are also forced into prostitution…for Amazon shareholders. That’s vile. But it’s how they keep their costs low. Sure, they may be passing the savings on to customers, but they’re also passing along STDs, human rights violations and outsourced labor. What’s a clear conscience worth to you?

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster.” We chose the name Qwikster because it refers to quick delivery. We spent hundreds of thousands of dollars with our marketing folks on this, so we sincerely hope you understand the reference. We will keep the brand “Netflix” for streaming.

Unlike our competitors, we’ve decided to make things simpler and more ethical for our customers. That’s why we have two separate services and two separate queues: Netflix for streaming and Qwikster for DVDs by mail. By using different sites, you should never be confused or overwhelmed like you are at Amazon.

It also makes accounting easier. If you subscribe to both services, you will have two entries on your credit card statement: one for Qwikster and one for Netflix. Not just one ambiguous lump sum.

To further this convenience, we are also developing a new iTunes app for Qwikster users. Those of you who already enjoy the Netflix streaming app can now download the new Qwikster app for $18.99. What better way to organize your streaming and mail-based movie subscriptions than through two distinctly dedicated queues?

We’re also unveiling new Chrome apps for Qwikster and Netflix. Currently, logging on to your queue is a cumbersome and time consuming process, we know. And again, I apologize. Typing our URL into your browser’s address bar or struggling to figure out how to bookmark and then organize the sites can take forever. But with the Chrome apps, you can access our web sites simply by clicking on the icons. Amazon doesn’t offer that.

The apps will help you recover all that wasted time, so that you can enjoy your movie selections immediately. The cost for each app is a $30 annual membership. That’s like an eighth of a cent a day. You can’t even feed a starving child for that.

But the real message here is that we care about our customers. Streaming is the wave of the future, but we’ve been unwittingly ahead of our time. As you also might know, we’re losing our contract with Starz, which provides the bulk of our streaming content. They just can’t see the future as clearly as we do. Their loss. I believe the problem with companies such as Starz and Amazon is that they’re just businesses. They lack focus on the needs of the user community and don’t interact with their customers. Well, we’re changing that too.

Until we can secure a contract with a new content provider to replace Starz, we want to engage our customers and involve them directly in the movie making process. Just as CNN now relies on viewers to provide all their news footage and interviews, we invite Netflix users to film their own movies. Nearly everyone has access to a video smartphone and film editing software. So, let’s see what you’ve got. You could be the next Orson Welles or Steven Spielberg. Simply film your grand cinematic vision, complete the user-friendly credits form, and then submit your masterpiece using our idiot-proof upload feature. Within one business day, your movie will be available for streaming to all Netflix users.

The industry may be taking a giant leap backward, but we at Netflix are committed to the future, and with your help, we’ll keep pushing forward and civilizing this digital wilderness!

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

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