Reed Hastings (Wikipedia photo)

It is pretty rare to see this type of mea culpa in the tech industry. But Netflix CEO Reed Hastings just said in a blog post that he “messed up” in how the company communicated recent price increases to customers.

The remarks come as the company announces plans to spin off its DVD mail order business under the name of Qwikster.

Meanwhile, the Netflix brand will live on for the company’s streaming video service.

“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,” wrote Hastings. “That was certainly not our intent, and I offer my sincere apology.”

It is a fascinating read from the CEO of a publicly-traded company, and it will be interesting to see how Wall Street reacts on Monday morning. (The stock was hammered last week after Netflix announced that more people are canceling their subscriptions than anticipated).

As part of the spin off of the DVD rental business, the Qwikster brand plans to carry video game titles for the Xbox 360, Nintendo Wii and Sony PlayStation.

[GeekWire Poll: Do you accept Netflix's apology?]

Hastings says that DVD rentals and streaming video have grown apart, and that the company will be more innovative operating as two separate units. Hastings, also a Microsoft board member, writes:

“So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to ‘Qwikster.'”

As previously noted on GeekWire, I wouldn’t be surprised if Netflix is prepping for a sale. Splitting the company into two distinct brands could help position it to sell off either piece, something that GigaOm also thinks is possible.

Here’s Hastings taking his message to the YouTube community. Ever seen this sort of public apology before from a tech CEO?

Comments

  • http://blog.CascadeSoft.net @CascadeRam

    >>It is pretty rare to see this type of mea culpa in the tech industry.

    I didn’t see this as a big deal. He is strongly defending their new pricing plan and isn’t reconsidering the plan.
    He is just saying that they didn’t do a good job in “communicating” their plan.

    However, imo customer anger wasn’t about the “communication”, it was about the price change.

    I think that Netflix is panicking and their latest change makes a bad situation worse.
    Requiring current customers (like me) to maintain two different accounts on two different websites is going to worsen the customer experience.

  • http://www.intrinsicstrategy.com FrankCatalano

    I read this as a “We’re sorry you don’t understand,” not a true apology.

    As one of the many who cancelled my Netflix DVD plan (because I only watched one or two DVDs per month in combination with streaming), I also have to wonder about the customer-facing reason for splitting the two businesses into Netflix and Qwikster. Yes, behind the scenes they may have different operational issues and business models. But to the customer, they’re all about paying to watch movies. To the customer, it’s the same kind of business.

    But to the business, it’s a great way to set a company up for a sale, and I have to agree with that speculation. It also makes sense that the Netflix brand would be attached to the part of the business perceived to have the most value, because part of the value IS the brand.

    For this consumer, I subsequently started using RedBox for my current DVD rentals and was pleasantly surprised by the ease, email confirmations/receipts and web reservations (as well as the cost). And Seattle Public Library has the older, more classic movies on DVD (and an even better price). I won’t be going back, no matter what the new name.

  • Guest

    Congratulations and welcome to Qwikster! This is a great new option for those of us with more diverse tastes than are encompassed by Netflix’s shrinking streaming catalog. Reed, you’ve done it again.

  • Guest

    I read this as a 3am, I’m drunk and feel like ranting email.  I guess he doesn’t need approval from anyone to send an email because I don’t know who would ok such a self-loathing, pathetic, lengthy message.  In-home movies are only a life or death matter to this guy, not to anyone receiving his email.  He should get some perspective.

  • http://twitter.com/RedRussak ‘Red’ Russak

    I just got an e-mail from Netflix that starts with “I messed up. I owe you an explanation.” I still love you guys ;) Now offer me a discount or something!

  • Forrest Corbett

    This seems like a bigger mistake than before. One of the things I love about the Netflix service as it is now, is searching for something and finding it’s available as a streaming when I was searching for a disc. Now they’re going to disintegrate the two services. Which means now I Have two places I have to search in order to find something… as I’m not going to use my disc-at-a-time if it’s available for play instantly.

  • http://www.facebook.com/people/Steve-Murch/705204492 Steve Murch

    This is fascinating. 

    “The Innovator’s Dilemma”, that watershed book by Clayton Christensen, compellingly outlines why the leaders of innovation should disrupt existing businesses.  If they don’t, Christensen argues, those that focus on the low-end or platform shifts will eat their lunch.

    But what should be done in a situation where the disruptive business already exists within a company, and when there are significant competitive and consumer benefits in keeping the two under one roof?

    It’s true, the revenue and cost structures are quite different in the streaming vs. disc-delivery businesses.  However, one of the major competitive strengths of Netflix has always been its combined queue, vast knowledge of consumer preferences, and dual bit-delivery model that allows consumers and suppliers to easily straddle the decade-long transition from physical to virtual delivery. 

    With today’s move, which I think is far more significant than any price change, Netflix is deliberately deleting a major consumer and strategic benefit.  Consumers will apparently be forced to log in twice, manage two separate queues, re-train preferences on both accounts, manage billing profiles on both accounts, etc.  Like many customers, I’m likely to make the move to Amazon and/or Hulu Prime because of this.

    I think this is a case of a company telling its customers that they need to conform to the way business is done, rather than the other way around.  And it rarely bodes well.

  • Bill Messing

    Pretty amazing for the company that sponsored the Netflix Prize to be cutting loose all that DVD preference data. Although it must be declining in value.
     
    Reminds me of when Microsoft sold the floppy-disk plant to KAO at a time when almost everything it did was distributed in that format. Seemed unnatural at the time but within a few years that activity had no value at all.

  • Sidnee

    I’m sorry Netflix, er…Quickster (sounds like Napster?), but from either a business OR a customer service perspective, this idea just doesn’t make it. It’s not just about communication… it’s about service and convenience. One of the great things about buying online is knowing we can get what we want, when we want it, and in the format choose in one convenient place, and someone will get our stuff to us safely and securely while keeping track of our buying histories and preferences.
    Using the Amazon book buying model as an example… we can now purchase books in several formats, from hard copies, used books, download to Kindle… even buy books for others. Amazon has continued to expanded its range of services, and improve customer service, while lowering the cost (free mailing) to customers. Check out how Amazon is doing lately… and they have seen no reason to change their name, or fragment their services into several companies, while taking ownership of the consumer world. And while you’re at it, look at how Nordstrom has streamlined its online catalog service to include the inventories in its stores. They’re doing fine last time I checked…

  • http://www.genivu.com genivu

    I had put the price increase behind me because it is such a small amount of money. But splitting the service in two has me seriously considering the alternatives.

  • Russ

    This note from Reed Hastings is one of the more interesting coverups I have read. It completely ignores the most irritating of the recent changes – the price increases, and describes a new irritating problem – now 2 web sites to manage instead of one. I do not understand the minds of management when they think they can send out what, in their mind, is the perfect solution to a problem they created. It would have been somewhat acceptable to increase subscription prices by perhaps 10%, but to double those prices, and now create 2 web sites goes beyond any proper customer care. Netflix had a very good product, but these new changes may be an attempt to force subscribers off DVDs and just deliver streaming movies, since that eliminates a significant part of Netflix’s internal expenses. When I sent my reply, it went into their general into box that never gets read. What a joke!

  • Maui2000jk

    How do I order DVD’s to be delivered to my home.  What used to be Netflix is no longer available and they have all my info.

  • Guest

    How about this, Mr Hastings? Leave the sites integrated and both mediums available with one click at netflix.com, but charge me additional postage and/or a service fee for each DVD that is currently available to stream but, for whatever reason, I want it physically delivered to my home. I’m happy to pay for services rendered. Do that and I’d be happy to stay on as a customer. When banks began installing ATM machines/online banking, they did not tell customers that if they wanted to talk to a live teller, they needed to start a different account with a different bank, that was related (or owned) by them, but not connected. Make it two separate sites that don’t communicate and people will find a different place to rent/stream videos. And Reed? Why didn’t you just ask us for our thoughts first? Obviously we would have been happy to offer input!

  • Jerry

    Netflix has lost my respect and part (so far) of my business.  They almost doubled my cost without my permission (well, in part that is my fault since I refer all of their email to my “trash” account), and their streaming site has almost nothing I want to watch.  Looking for better alternative.

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