Netflix Mea Culpa And Rebranding Changes Nothing

| About: Netflix, Inc. (NFLX)

Netflix (NASDAQ:NFLX) CEO Reed Hastings posted an apology on his blog late Sunday night. The good news is that Mr. Hastings is following Warren Buffett's age-old advice: When you make a mistake, own up to it. This definitely shows that Mr. Hastings is starting to hear the messages that his customers and the market are sending.

Regrettably, the problem lies less with Mr. Hastings (who did a fabulous job of disrupting DVD delivery when Netflix first came on the scene), but that Netflix's business model simply isn't sustainable anymore. Both I and many other SA authors have expounded on this issue (see here and here).

As part of this mea culpa, Mr. Hastings announced that Netflix would split into a DVD division and a streaming division. The DVD division will now rent video games as well, which should provide a minor boost to revenue (although competition exists in that arena), and rename/rebrand itself as Qwikster, while the streaming division will be called Netflix.

If you have subscriptions to both, you'll now have to double the amount of work you must do to manage your account because these divisions will be separated into two different websites. Netflix does not see this as being a big deal, but--

Oh, man. That is not a good move. Judging by the comments already hitting Mr. Hastings' blog, customers are just getting even angrier. Just a brief sample:

Seriously, you thought a good idea to make up for miscommunications was to separate the websites and make it more complicated for us to manages our queues? Really?

As a Netflix loyalist for more years than I can remember, I find these two significant changes to the service to be a failure of epic proportions. I am not one for focus groups but I can nearly guarantee you that a 15 minute customer session would make you realize this is a second mistake. I hope there is still time to course correct as I, for one, don't want two websites, two queues, two accounts and, definitely, hope I never login to a service called Qwikster.

Netflix needs to make three big changes:

The first is that it has to figure out how to evolve its business model. I wish I could help. I really do love its service, but things are changing rapidly and it must also change.

The second is that it badly needs some crisis communications consultants to help steer its public relations effort.

Finally, it desperately needs to completely re-jigger the way the Board of Directors does business. There is no transparency or accountability. The message that this sends to shareholders and the public is a really, really bad one (see my second suggestion).

Disclosure: I am short NFLX.