Corporations are routinely criticized for lacking contrition. They make mistakes and go into silent mode, refusing to recognize their shortfalls and apologize to their stakeholders. Recently, Netflix made a very public apology for controversial price hikes and procedural changes stemming from the separation of its video streaming and DVD-by-mail businesses. Normally, a company would be praised when its CEO faces the music. In the case of Netflix, conciliatory statements by its leader Reed Hastings have only brought more PR woe.
In his blog statement, Hastings acknowledges a lack of communication concerning the split of streaming and mail services and the resultant extra charges to customers. At the same time, he calls the diversification justified and the price hike inevitable. Customers, journalists and pundits have seized on Hastings’ assertions and tone as continuations of the arrogance he regrets in his blog.
NY Times tech writer David Pogue assails the added complexity of the dual service and places disparaging quotes around the word “apology” in describing Hastings’ post. Jim Lukaszewski, one of America’s leading crisis communications experts, is even more condemning as he calls Hastings’ statement a faux apology for staunchly defending the offending actions and offering no remedies to aggrieved customers.
Hastings admits the reason for the drastic changes at Netflix: he doesn’t want to get left in the technological dust. He cites AOL and Borders as examples of companies that assumed market leadership only to fall behind the times. Clayton Christensen’s book The Innovator’s Dilemma studies such corporate collapses due to lack of adaption. The very name Netflix predicted the eventual primacy of online media when the company launched in the dial-up days of 1997.
Netflix’ urgency to strengthen its online offerings is part of an overall trend in the media industry. As reported in the Los Angeles Times, DVD sales are down and Hollywood is looking to the Internet as the primary channel for home entertainment. Netflix is right not to cling to DVD-by-mail. Failure to move past original business models is an all-too-common practice that killed off the previous movie-rental champ Blockbuster. The concern now is alienating current Netflix customers who will drive immediate revenues for the streaming business.
Netflix is also right to create two separate brands for its streaming and mail divisions. This focus of identity subscribes to the tenets of Positioning, the landmark marketing book by Jack Trout and Al Ries. However, Ries’ daughter and partner, Laura Ries, says that while the split makes positioning sense, the new branding is a flop by replacing the familiar Netflix name with “Qwikster” for its most familiar service, DVD-by-mail. Her Twitter diss of the Qwikster brand is particularly saucy. I will only go so far as to say that Qwikster sounds like a 7-Eleven wanna-be.
In the end, Netflix is abiding by the teachings of many marketing and PR gurus–up to a point. It is heeding Clayton Christensen’s lessons in staying technologically relevant even at the expense of current offerings. It is following the Ries rules of positioning and focus in dividing the company. And it is observing the long-standing advice of PR professionals to have the CEO address the public during crisis. Netflix’ persistent problems, however, arise from faulty execution and suspect sincerity. The Qwikster name is weak, the double interface for streaming and by-mail media clumsy, and the price increase insulting to loyal customers amid a bad economy. By admitting none of this now, Reed Hastings may be forced into a more painful and proper apology later.
POSTSCRIPT 1: The Wall Street Journal announces separate deals by Netflix and Amazon with major Hollywood studios to access their movies and TV shows for streaming video. Just as Netflix is moving away from dependence on DVDs, Amazon must make the transformation to accommodate consumer trends. Kindle demonstrates Amazon’s ability to shift from physical media to digital.
POSTSCRIPT 2: Netflix abandons the Qwikster brand and dual websites for streaming video and DVD-by-mail. However, the increased charges for using both services remain.