Netflix: on the Queue for disaster?

Dear John,
I messed up. I owe you an explanation.

This is the Email I’ve received from Netflix CEO, Reed Hastings.  Recent changes for Netflix this past year has been giving the company some bad rep.  July of this year, Netflix had warned its current customers that prices would be going up by about $6.  This is generally a separation of DVD and streaming services; anyone with a DVD + streaming subscription would have seen their price as being a combo of $7.99 streaming plus however much they’d be charged for DVDs.  Many people have claimed to be canceling their subscriptions as a result.

As if this wasn’t enough, Netflix is now making further changes to their subscriptions.  The company itself will no longer provide a DVD service, but only provide streaming.  The DVDs will still be shipped, however, but from another branch company called Qwikster.  Although there will be no more price changes (“We’re done with that”), this means that to modify one’s DVD queue, one must log into another site; this means having two accounts to manage.

These approaches have not been sitting well with investors.  “Netflix Inc. stock fell $13.72, or 9.5 percent, to close at $130.03 Tuesday. It is now down 55 percent since July 12”, July 12 being the date when the initial price hike was first announced.

Hastings’ biggest concern was that Netflix “wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us)”.  As a result of this, Netflix decided to primarily embrace streaming as it will become the new demand.  His transition into this change is what knocked subscribers off guard.

When running a business that revolves around media, it’s important to keep up with the times so as to not be left behind like AOL or Borders.  I would have to say that Hastings handled this fairly well.  Creating a new company for DVD mail-ins might be a bit drastic, but if that’s the best way for his company to focus more on new technology, it may not be that bad of a move.