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Passing Grade (JOUR 4460)

Netflix has had a rough time the past few months.  Giving their customers a two-hit combo in the gut, they announced that their DVD mailing service would no longer be paired with streaming services and prices would be going up.

Raising prices when the country’s still choking on exhaust from the recession’s drive-by would be a bad move for any business.  But to do it with no clear reason other than wanting to increase profits makes it even worse.  Here’s an excerpt from the blog post announcing the price change; it’s actually a little insulting once you think about it:

“Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering.”

So.  What you’re telling me is that DVDs only cost me $2 before, and now you’re going make me pay four times as much for the exact same thing because it makes “financial sense,” and I’m supposed to be happy about it?  Referring to it as their “lowest price ever” didn’t help matters either.  I guess they assumed their customers weren’t able to do simple math.

Netflix lost one million subscribers in three months.

The people spoke and thankfully, CEO Reed Hastings listened.  In a recent blog post, he comes across as humble and apologetic for the way he handled the change in policy.  He acknowledges that they announced the news in the wrong way, with the wrong tone.  It’s a well-written message to the public.

However, in a weird move, Hastings decided to announce the birth of a whole new company about two-thirds of the way into his letter.  The awkwardly named Qwikster will be the new face of the DVD mailing service, while Netflix will only refer to the streaming services.  And if the new name wasn’t embarrassing enough already, in a hilarious twist, the @qwikster twitter handle had already been taken by a weed-smoking Elmo.   The profile picture was changed soon after the user realized his account had become national news.

Despite that, I think they have a chance of regaining some of what they cost themselves.  They have a lot of catch-up to play.  CFO David Wells recently said the company hasn’t ruled out a price drop.  I’m sure the customers wouldn’t complain if the prices went down, but I don’t think it will fix everything.  Having a money-oriented mindset is what got them in this mess and continuing to think with their wallets isn’t going to help.

Sure, part of the problem was the price increase.  But I think most people had a problem with the way it was communicated to them.  It was arrogant and cavalier.  But with more sincere messages and a few changes to give their customers value along with the higher prices, I think Netflix can be forgiven.

For right now, I give them a C+.

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