Monday, September 19, 2011

Did Netflix React Too Qwikster-ly?

Wow! Didn't see this one coming. On the heels of his company getting hammered by Wall Street (which I recently wrote about at length), Netflix's CEO Reed Hastings just officially split its DVD/online streaming company into two separate companies. And, here's the kind-of-wacky part -- the original DVD business is the one that is getting the new name ("Qwikster") while the online streaming business will retain the "Netflix" name. "Qwikster"? Really? Reed Hastings, in a blog post full of contrition, explains that they chose that name because of how quickly DVDs are delivered to your mailbox. Hmmm ... will have to chew on that one.

In any event, Hastings gives his full explanation of "why" in his blog post -- click here to read. And, he begins by apologizing profusely for not being a better communicator with his customers about recent price hikes, etc. (Interestingly, I just recently wrote that Netflix needs to turn things around primarily by communicating more effectively to its customers.) He calls himself and his company "arrogant" and "thoughtless" to its customers.

He also -- dangerously in my view -- promises no more pricing changes with respect to either company's services (in his words, "we're done with that!"). But, what does that mean? And, for how long? He simply cannot fully predict what his online streaming service's cost structure will be in the future -- because it is primarily dependent upon the costs of acquiring compelling motion picture and TV content (and we know that those costs will only skyrocket in the years ahead). I have praised Netflix in the past for bravely leading the way with respect to price experimentation -- something necessary to "dial in" Netflix's streaming business model. Looks like Netflix is giving that up given the recent customer backlash. But, as Hastings himself admits, perhaps it was more communication (or lack thereof) that hammered them more than the fairly minimal price changes themselves?

Bottom line. Yes, Netflix and Hastings (and Netflix stock) have been hammered in the past several months -- I mean, hammered. But, has Hastings moved too Qwikster-ly? Is this really proactive bravery or reactivity? I know that my most recent Netflix-focused post last week was titled "Netflix Needs a Net Fix Fast!". But, wow -- is this a "fix" or an over-fixation with Wall Street?

My prediction -- Netflix's stock will be hammered again today when trading opens ....