Netflix customers received an email this morning from Reed Hastings, co-founder and CEO of Netflix. In it, he eats a fair helping of humble pie, acknowledging that ”many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes.”
That’s the second thing he did right. The first came months earlier, when he recognized that streaming video was a different business than mail-order DVDs. Having the two services under the same name, at the same web site, was confusing. As a customer of both, I found myself occasionally putting a movie in my DVD queue when I actually meant to place it in my queue for instant viewing. So they’re doing something else that’s probably a good idea — changing the name of the DVD service to Qwikster and separating it from the Netflix streaming web site.
What Netflix did wrong was to simply announce what amounted what amounted to a 60% price hike. I and a million other customers dropped the DVD service immediately. For most folks, it wasn’t about the money. Rather, it was about the feeling that something had been taken away.
Once we have a service, we tend to quit worrying about the price, as long as price changes are incremental enough to prevent outrage. That’s why the cable and telephone companies can get away with teaser rates that go up after a few months. Once it’s in, we quit analyzing it. If we did the math on all the services we get at any given time, we’d usually find that better deals are available on some of them. But most of us have other things to worry about. So we go with the flow, as long as nobody calls attention to it.
But calling attention to it is just what Netflix did. The increase for the two services combined was stiff enough to force people to do the math. In my case, I realized that I only actually watch one or two DVDs a month. I can rent streaming movies for $2 to $5. Plus, I was miffed at Netflix’s arrogance in announcing the change. A few clicks on their web site and I was done with the DVD mail service.
If they’d phased in the change — perhaps $4 now and another $4 in a few months — they probably could have avoided the mess.
But they may be making a bigger mistake than that. So far, there’s no sign that Netflix intends to be in the pay-per-view side of the streaming market, and it may be too late. That would, of course, deviate from Netflix’s history of flat rate service, and that may be why they’re avoiding it. Only time will tell.