Netflix: A Cautionary Tale About A Change in the Weather
This is a sad story for me. I’ve been a loyal Netflix customer (and still am) since the first year they were in business. For years, CEO Reed Hastings and his team have appealed to me by simply supplying a great service at a fair price.
The company also impressed pundits and consumers alike by delivering disruptive value in the fast-changing home video market. Who else employed the crowd-sourcing model 5+ years ago to its best competitive advantage: a contest to build a better algorithm for learning consumers’ tastes and viewing preferences?
Who else forged deals years back with major TV and movie studios to build better inventory — or streaming content online AND making their name known alongside Blockbuster, effectively pushing that competitor (and many others) out of the picture? It was an almost breath-taking path of wins.
Then, something changed. In fact a great deal changed. The consumer marketplace became more savvy and social media injected complexity in the business plans of companies both large and small.
But so busy were Reed and his team in managing the expectations of the Street, that they didn’t appear to notice. The public market had been very good to his company and he was doing what he clearly thought was his fiduciary duty as CEO.
Unfortunately, Netflix stopped looking outwardly at change–and started looking in. They sought to merely maintain the status quo. In today’s consumer market, status quo is a killer. Social media has turned the model of decision making and power drivers upside down — and is putting them back where they belong: with the consumer.
If Reed Hastings had simply asked his loyal customers about a price hike, the splitting of websites and creation of Qwikster (the fastest Fail ever) and other mis-step decisions, he could have potentially avoided a massive customer defection (800,000 at last count–and they may never be back) and a more than 60% drop in stock price.
Netflix could have reached out simply and cost effectively through a variety of social channels ( You Tube, Twitter, Facebook, even supported by an ad campaign) to learn in advance of any strategy change what their customers wanted. They should have started a conversation. Instead, Reed broadcast his plan, already baked. And the market responded.
I view this as a cautionary tale for all companies large or small across every sector. If they don’t take stock of the ways in which their customers now connect and make their voices heard, than the market will punish them.
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I totally agree, Kate. The major faux pas that Netflix made was not bothering to listen to WHY its users loved their service which could have easily been accomplished via social media channels. Aside from the awesome price, the physical/streaming duo was awesome. When we had Netflix, we were thrilled by the notion that we could have a physical DVD sent to us to view at leisure as well as the digital alternative. We were on-again-off-again consumers since the beginning (currently off) but were starting to put serious thought into whether Netflix would be something ideal for use with my iPad. That quickly turned sour though… Aside from the massive price jump that originally hit, when they announced the spin-off of Qwikster, the issue wasn’t that there were two separate databases to search but rather a total separation of products/services. The MAIN thing that we loved about them was now gone.
Forward-thinking companies harness the power of social media before, during and after major decisions, campaigns and ideas.
I agree that Netflix could have avoided such a large loss of subscribers had they thought their plan through a little better. I work for DISH Network and I was excited when they announced their Blockbuster Movie Pass around the time that Netflix released their bad news. The Blockbuster Movie Pass has huge value and makes entertainment conveniently available by giving access to more than 100,000 DVD movies, TV shows and games available by mail, streaming of 3,000 movies to TV, 4,000 streaming to PC, and 20 premium entertainment movie channels from studios like MGM, Epix, Sony Movie Channel, PixL and more. The fact that the pass was released within said time frame, it’s proven to be a great alternative for ex-Netflix users.
Great assessment of what went wrong and what Netflix could have done differently, especially by leveraging social media venues.
A lot of my friends have been up in arms about the price hike, contemplating whether or not to keep their service. My perspective, however, is this: They’re still only spending $17 per month to get movies and television programming sent directly to their living room via communication infrastructure that cost billions of dollars to erect using technology that cost billions more to develop, giving them (almost) whatever they want, whenever they want it, and in unlimited quantity. PLUS bonus new-releases mailed out on DVD, and the customer is limited only by the speed at which he can view and return them via post.
This to me is a miraculous privilege – all for the cost of a few fancy lattes (another miraculous privilege). Given the cost of bandwidth and digital rights, I had figured a price increase was inevitable. But I was shocked by the extent of the negative reaction by so many consumers. You say “savvy,” but I say “jaded sense of entitlement”. Just sayin’…