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Qwick retreat: Netflix kills plan to split in two
Question of the Day
NEW YORK (AP) - To the ranks of New Coke and the Edsel, we can now add Qwikster.
Less than a month after announcing a plan to separate its DVD-by-mail and Internet streaming services, Netflix reversed course Monday and said it would keep the two services on a single website. Customers had complained loudly that the plan would have made it more difficult to watch movies. Investors hated it, too.
In the end, the company backed down. But Netflix’s turbulent relationship with subscribers over the last three months raises questions about how it’s being managed during the transition from delivering movies on disc to sending them over the Internet.
Until recently, CEO Reed Hastings had always seemed to possess an uncanny touch. He was the David who crushed goliath Blockbuster and a visionary who foresaw the death of the DVD. He was also a beloved leader who lavished his employees with above-market paychecks and unlimited time off.
When Netflix employees were asked to describe Hastings, they often pointed to the George Clooney character in Ocean’s 11.
But that cool, smooth operator seems to have vanished. Six months ago, Hastings and Netflix could do no wrong. Today, he and the company are fodder for “Saturday Night Live” skits and targets of venom on social-networking sites.
Netflix’s about-face initially pleased Wall Street. The stock rose as much as 10 percent in the first minutes of trading. But enthusiasm waned in the afternoon, and Netflix ended the day down 5 percent.
Analysts praised Hasting’s attempt at a mea culpa, but the series of missteps has stirred doubts about his leadership at a time when the company faces wrenching industry change and ferocious competition.
“They’re making decisions rashly and also potentially out of desperation,” said Tony Wible, an analyst at Janney Capital Markets.
Netflix started to resemble a different company last summer. The stock had been on a tear, rising from $110 in July 2010 to more than $290 on July 12, 2011. But on that same day, Hasting’s miscalculations began. That’s when he abruptly announced that Netflix was raising fees for its DVD business by as much as 60 percent.
For consumers, the timing could not have been worse. The economy remained stubbornly weak, and they had been given no warning.
They immediately took to Twitter and Facebook with their rants, bashing the company. Once the king of consumer loyalty indexes, Netflix sunk below competitors Blockbuster, Redbox and DirectTV.
On Sept. 1, before subscribers’ heads had cooled, Netflix lobbed another grenade: It would no longer stream any content from its powerhouse provider, the premium cable channel Starz. Customers who subscribed to the DVD service complained they were paying more for less.
Then came the coup de grace: the dreaded Qwikster, the new name for the DVD-by-mail service.
It had all the earmarks of a marketing disaster. First, Netflix announced the split with no warning, which was unusual considering that Hasting and his executive team have a history as great communicators. Worse was the fact that the news came amid a consumer revolt.
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