Netflix CEO Reed Hastings apologizes, introduces Qwikster, frowny face 2

Netflix CEO Reed Hastings apologizes, introduces Qwikster, frowny face

For years, Netflix has been the dominant source of movies. It wasn’t all that long ago that Blockbuster was the king of videos, mightily defeating the idea of local video store in favor of it’s all-in-one super store thinking. But just as rapid as the buster blocked, the company was taken to its knees by the upstart Netflix, whose DVD-in-the-mail service revolutionized the business. Taking things one step further, when Netflix introduced the mainstream way to beam movies into our homes without having to wait (lasers!!) the red-logo became the Highlander of the video world; there really could be only one. …but for many, that era could be evolving again.

For months now, and years for some, we’ve enjoyed instant streaming of movies and TV shows through Netflix, via our TVs, Blu-ray players, computers, and gaming consoles. Our video collections went from 20 titles in the Blockbuster era, to 3-per-month in the original Netflix era, to thousands on tap via Netflix’s streaming services. As great as the streaming video was, it was still a nice security blanket to have the one disc-per-month mailed to you, which helped cover the fact that so many movies and shows had yet to make the leap from physical media to insta-stream.

Ghostbusters II is available to stream.  Ghostbusters I is not.  What kind of madness is this!?

Ghostbusters II is available to stream. Ghostbusters I is not. What kind of madness is this!?

Just a few short weeks ago, Netflix seemed to buck all trends once more… this time, playing the role of the villain. The once beloved conqueror of all things video was now planning to separate their services: a path for physical media and a path for streaming, essentially doubling their price in the process. This did not sit well.

Certainly, many could see the logic behind splitting the products, and most fans had already picked a side as a streamer or a …physi… non-streamer. However, this move by Netflix to force your hand, make you chose a path damn you with a beefed up charge was not well received. Stocks plummeted, subscriptions were cancelled, and competitors like RedBox and Amazon rejoiced.

In an effort to better explain himself, Netflix CEO and co-founder Reed Hastings sent out an explanation email to all subscribers this morning. The message has a very informal, even poorly written, feel to it, which actually helps speak to the sincerity and credibility. At the same time, we can’t help but think that even a cold auto-generated cyborg email that offered a 1-month-free coupon would have been infinitely more appreciated.

The note is included, in full, below. What are your thoughts on the service? Were you a subscriber? Will you remain one? Will you follow Netflix over to Qwikster? Will you abandon anything connected to Netflix in favor of competitors? Is this one of the worst PR moves you can remember in recent years, or can you honestly see an effort to grow?

Dear 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. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix 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 – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we 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.

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 will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,
-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.
(http://blog.netflix.com/2011/09/explanation-and-some-reflections.html)