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Reed Hastings Says Grandfathering in Qwikster Would Have Worked

29 May, 2014 By: Erik Gruenwedel

CEO Reed Hastings at Code Conference

Netflix CEO tells tech confab the ill-fated 2011 price hike and by-mail disc rental spin-off was due to his arrogance

As the final speaker May 29 at Re/code’s technology confab in New York, Netflix CEO Reed Hastings offered the usual answers regarding net neutrality (“We don’t have anything close to that level of agreement between cable operators and ISPs”) and interconnection deals with Comcast and Verizon (“They want the whole Internet to pay them when their subscribers use the Internet”).

In addition to a surprise revelation about social media’s heretofore limited impact on Netflix (“Auto-sharing [on Facebook] hasn’t yet panned out”), when asked by an audience member why Netflix has turned a cold shoulder toward its pioneering and lucrative by-mail disc rental business, Hastings admitted packaged media is “clearly a hard problem” to deal with.

In late summer 2011, Netflix implemented a 60% price hike on its popular hybrid by-mail, streaming program, in addition to spinning off the disc business under the Qwikster name. The decision, and poorly articulated rationale behind it, saw 800,000 subscribers cancel service, and Netflix’s stock crater, losing 75% of its value.

“We had to be so aggressive [adopting streaming vs. disc] it made our skin crawl, that’s how much risk we had to take. We came up with this idea of separating the DVD business with Qwikster. It didn’t work out,” Hastings said, according to recode.net.

The CEO said that had Netflix grandfathered in existing subscribers to Qwikster, history would have worked out differently.

“The 60% price hike was tone deaf. That’s a mistake I’ll never make again,” Hastings said.

Indeed, when Netflix announced its recent $1 price hike (to $8.99) for new streaming (not DVD) subscribers, it was careful to grandfather in existing subs to the higher rate only after two years.



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