Netflix Missteps; Creates A Hobbled Dinosaur

Sep. 21, 2011 1:42 AM ETNetflix, Inc. (NFLX)AMZN
Kevin Berk profile picture
Kevin Berk

The blogosphere is all atwitter with reactions to the latest jarring Netflix (NASDAQ:NFLX) change. Many users have taken to twitter to protest the further splitting of the DVD by mail business from the streaming business. Mark Suster wrote a thoughtful piece on why the split is a good move. Bill Gurley provided a logical hypothesis on why the pricing move was made. The Washington Post had a sardonic editorial about how the move screams to customers to stop renting DVDs by mail. The stock has continued its descent - it has now dropped more than 50% from its peak.

I agree that Reed's apology was the right thing to do and was well written, but the pricing change was a tactical misstep and a missed opportunity. The splitting of the business was perhaps the right long term move but feels more about the company than the customer. For such a successful customer focused company, these moves feel pretty jarring. Customers are clearly voting with their feet. A better (albeit slower) approach would have been:

  1. Communicate about the future before any changes

  2. Separate the businesses internally (even two CEOs)

  3. Provide a one month window to grandfather yourself into the old plan for 6-12 months (Netflix would have had a surge in signups that month)

  4. In one month, change the pricing for all new customers

  5. In 6-12 months, split the services and force existing customers to pay for them separately

  6. Keep the interface integrated - at least allow people to manage their queues, billing, ratings, recommendations, etc. in one place

Blockbuster is trying to capitalize on the confusion. Given the customer backlash, a lot of customers seem to want to get back an integrated service. The DVD-by-mail and streaming service complemented each other well. Couldn't find it streaming? Netflix shipped

This article was written by

Kevin Berk profile picture
Kevin Berk is a strategic investor, entrepreneur and an expert in online media. He helped develop online ventures at CitySearch and Disney, and was instrumental in the merger of TicketMaster and CitySearch and the combined company's IPO. (It is now owned by IACI.) He founded in the online search and directory space. He then led the advertiser products team at LookSmart before co-founding online job search company YorZ and writing his blog, Berk Sure Has a Way ( Kevin combines an insider's understanding of online content, search and advertising with an eye for stocks and a clear writing style.You can follow him on Twitter:!/kevinberk

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