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The Qwikster joins the dead

By Michael R. Shannon
web posted October 17, 2011

I've been wondering how many of the Occupy Wall Street squatters were actually enraged Netflix subscribers or retirees with Netflix stock in the 401K?

The timing is about right. In August Netflix increases the fee for plans that include video streaming and DVDs by a shocking 60 percent. In September the company announces it's amputating the DVD side of the business and naming the new entity Qwikster. And in October Netflix was planning to introduce beer commercials during streaming programming for everyone not subscribing to the new 'premium plan.'

No wonder protesters were preparing to punish capitalists and any corporate employees above the level of 'barista.' But participants in the March for Generalized Outrage are too late. The market has worked its magic and bulls bearing sell orders got there first.

Netflix stock was at $300/share last July. After investors had more time to evaluate the inspiring leadership of CEO Reed Hastings, the stock price dropped to $111.62 in early October -- a plunge of 60 percent in value, strangely mirroring the August price increase.

Try to match that economic damage by dressing like zombies, pooping in the shrubbery and hoping Congress will invite you to a hearing.

It's rare that a company becomes suicidal in such a brief period of time, but Netflix appears to subscribe to the theory that any publicity is good publicity, even if customers are burning car tires in the street outside corporate headquarters.

The first signs of a management woefully out of touch actually appeared months ago, way before the price increase and Qwikster cwazyness. The tipoff was testimony before a House–Senate hearing on the elimination of Saturday mail delivery.

Netflix is the USPS' largest customer, spending over $600 million yearly. In my business our largest customer has amazing clout, up to and including "is it OK if I use my tongue to shine your shoes?" Yet Netflix appears to believe USPS is doing it a favor by taking the money.

In fact Netflix sent a representative to the hearing to cheerlead for the post office, claiming that eliminating Saturday mail delivery would have little, if any, impact on subscribers.

I'm sure it won't bother Hastings -- a lackey delivers his DVDs before Reed leaves the office. But for customers, eliminating Saturday delivery means no mailing a DVD back on Thursday and getting a new one in time for the weekend. Customers lose 17 percent of the delivery service with no corresponding decrease in price.

This sort of tone–deaf decision making is only possible if you are an "industry thought leader" that reads too many of his own press clippings. Lucky for Netflix government will bail it out, because elected officials are not going to give up Saturday mail delivery as long as elections are held on the next Tuesday.

Netflix mistakes should be instructive for those confused about the free market, starting with the 'Occupy' crowd. After the August price increase I didn't call Uncle Sam and demand government intervention. In September, when the new billing rate began, I called Netflix to cancel the DVD portion of the plan.

In addition to being unaware that his customers like new movies on Saturday for weekend viewing, Hastings is also evidently unaware of competition from Redbox (he really must do something about the tint level on the limo windows).

Redbox rents a new movie for only a buck a day, without requiring a visit from the postman. In fact I would have to rent 17 movies a month to equal what my old Netflix plan cost. And I was not alone in this decision. Over one million other customers dropped at least a portion of their Netflix service in response to the price increase.

When management followed the price increase with the Qwikster stupidity, Netflix made the fatal mistake of complicating something that was already simple: making two websites, two passwords, two lists of movies, two sets of recommendations, two bills.

Before another million or so customers jumped to Amazon, iTunes or other streaming services, Netflix backed off and Qwikster joined the dead. Although even then Hastings did something foolish when he said, "While the July price change was necessary, we are now done with price changes," a statement that will haunt the company in the future.

A big corporation offends customers. The media covers the controversy. Customers punish the company by dropping its service and choosing an alternative product. Investors punish the mistake by selling the company's stock. The company learns from the mistake or it falls by the wayside.

Proof that a free market offers options -- and competition, not government, is your best protection in the marketplace. ESR

Michael R. Shannon is a public relations and advertising consultant with corporate, government and political experience around the globe. He is a dynamic and entertaining keynote speaker. He can be reached at michael-shannon@comcast.net.

 

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