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Hastings: ‘I Messed Up’

19 Sep, 2011 By: Erik Gruenwedel

Reed Hastings

In a rarity among corporate CEOs, Netflix boss Reed Hastings admitted to under-appreciating the very disc subscribers who helped the service transform home entertainment

Netflix co-founder and CEO Reed Hastings Sunday night issued a mea culpa blog post and mass email apology to subscribers.

While millions watched the Emmys Sept. 18, Hastings was at the computer sending subscribers a copy of his post with this lead: “I messed up. I owe you an explanation.”

Some would argue an explanation has been long due from a company that at one time redefined customer service and was so technologically ahead of the competitive curve it appeared immune to economic recession. But with its stock in a freefall from an all-time high above $300 a share in July, and 1 million more subscribers (including 800,000 disc renters) dumping the service than previously expected, Hastings had to take the sword.

“I slid into arrogance based upon past success,” he said and wrote in the email and video. “We have done very well for a long time by steadily improving our service, without doing much CEO communication.”

Actually, Hastings has done plenty of “talking” in recent analyst calls with his ongoing dismissal of packaged media. Case in point: During an April 25 first-quarter fiscal call, Hastings was asked about a probable 3 billion rental disc milestone announcement as Netflix had done for 1 billion disc rentals in 2007 and 2 billion in 2009.

Hastings dismissed the question.

“Our focus is really on streaming at this point,” he said. “So I don't anticipate that we would have or will make those kind of announcements.”

Of course Wall Street, which heaped non-stop praise upon Netflix now is writing primers on how its management team screwed up customer PR.

“Some customers may feel Qwikster is like new Coke — what was wrong with old Coke?” said Russ Crupnick, entertainment analyst with The NPD Group. “Why after building all the brand equity, would you dispose of it?”

Crupnick said Hastings’ letter came across as clear and heartfelt, which he said could score points with longtime subscribers. At same time, he said splitting Qwikster and Netflix into two non-compatible websites seems frightening.

“At least today if I can't stream Dirty Harry I can put it on my DVD queue,” Crupnick said. “So this really wasn't about me, the customer, but rather, Wall Street?”

Indeed, an ongoing informal survey of Netflix subscribers on HackingNetflix.com found that 75% of respondents found the creation of Qwikster and its non-compatibility with Netflix both a “bad idea” and “dangerous,” especially with competitors such as Amazon, Dish/Blockbuster, Google and Redbox waiting to pounce.

A Dish/Blockbuster spokesperson said Blockbuster had no immediate plans to up its anti-Netflix marketing. The chain in recent months has distributed mass mailers and introduced new in-store signage encouraging consumers to ignore Netflix and try out the revitalized Blockbuster.

On Sept. 23, Dish will hold a press conference touting “A Stream Come True,” a much-speculated launch of a Blockbuster branded streaming service.


About the Author: Erik Gruenwedel

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