Netflix announced a change in their business model in July 2011. Starting in September, customers would be forced to pay more or get less. Technology changes had forced the DVD-by-mail company to adapt to the video streaming option and become good at both. After the change was announced Netflix faced an exodus of customers, a far greater loss than they had anticipated. On September 18, 2011 Reed Hastings, the CEO of Netflix posted an “Explanation and Reflection”on the Netflix blog that is likely to make things even worse. This announcement is a good example of how attitude, tone and perspective can make all the difference in corporate communications.
From Reed Hastings, CEO of Netflix:
An Explanation and Some Reflections.
I messed up. I owe everyone an explanation.
It is clear from the feedback over the past two months 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 was certainly not our intent, and I offer my sincere apology. I’ll try to explain how this happened.
By titling his blog entry an “explanation,” and then using the phrase “sincere apology,” Hastings creates a question in the readers mind. “Well, is this an apology or an explanation?” Explanations can often sound like excuses to those who feel offended. Also, the opening phrase, “I messed up.”comes across as flippant and impersonal.
In the second sentence, Hastings says he owes an explanation to “everyone” rather than the more personal statement that he owes “you” an explanation. There is a distancing in acceptance by using the phrase “the” feedback” rather than “your” feedback or “member” feedback. When he mentions that the lack of communication was perceived as lacking respect and humility, he deflects responsibility by saying it was not his intent. This is like someone saying, “I’m sorry you are offended.” A sincere apology would have been expressed as “I’m sorry my words or actions offended you.”
When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.
But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.
The fact that Hastings frames his switch from no communication to an after-the-fact explanation as “extra-communicative” is as arrogant as a teenager saying they will be “extra-communicative” to call when they will be out past their expected return home. This is not “extra-communicative.” It’s common courtesy, otherwise known as the essential minimum we expect in a respectful business or personal relationship.
Using the phrase “slid into arrogance” based on “past success” shows real hubris. He didn’t slide into arrogance — he seems to have set up camp there a long time ago. He misses the point that his past success was despite his communication style, not because of it.
We hear his confidence in the surety of his decision in the phrase “…it wouldn’t have changed the price increase but it would have been the right thing to do.” but not an understanding of the customer’s experience. If he had approached his pricing decision with a different tone — communicating that he regrets that the new policy would cause distress and inconvenience but was still necessary– it would land far better than the “take it or leave it attitude” he communicates here.
So here is what we are doing and why:
Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.
Hastings tone comes across here at defensive and self-promoting. A shift in tone would better serve his goals. For example, “For those of you who love our deep catalogue of movies and TV series, we seek to continue to offer them to you. We strive to find a way to do this in a way that is economically viable for us and a superior experience for you.”
I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.
So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to “Qwikster”.
We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.
Again, the tone seems paternalistic and arrogant as Hastings states the obvious, “Because streaming is integrated into my TV and I can watch anytime I want,” and the incredibly banal, “We chose the name Qwikster because it refers to quick delivery.”
On a side note, is it just me or does the suffix “-ster” seems ill-advised viewing its association with Friendster, Napster and other flash in the pan companies from a decade ago? Seems that Netflix views DVD users as “oldsters.”
For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you. We’ll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.
Yet more examples of Hasting’s fond memories rather than an understanding of the customer experience and how the new changes could affect them.
I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.
Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.
Respectfully yours,
Reed Hastings, Co-Founder and CEO, Netflix
His final apology again expresses no responsibility for customer anger. By using the word “felt” — the customers who “felt they were treated thoughtlessly” — Hastings puts the hurt feelings back on the customers themselves by suggesting that they misinterpreted his actions. Even ending with the phrase, “Words help people understand action,” has a paternalistic tone that implies, “Now that you have heard my explanation I expect you to agree that my decisions are the best for us and therefore best for you.”
Imagine if Reed Hastings had used this controversy to connect more deeply with the membership. Imagine if he had taken responsibility, if he had acknowledged that the Netflix change was experienced by customers as a rule by decree rather than collaborative problem solving. Imagine what could have happened if Hastings had created a discussion among this customers about the challenges for Netflix to remain financially viable during rapid technology changes. Imagine if Hastings had shown an effort to gather customer data before announcing the name change and new business model. In these ways his customers would have felt respected.
And isn’t that the bottom-line in any relationship? We want to continue with relationships that are respectful even when times are tough. However, when there is a lack of respect we usually reevaluate our relationships, especially when there is a major change that brings that lack of respect out into the light.
If your company communications could use an honest outside perspective, contact me before you harm your brand. Thoughtful communication now will save you from following in the footsteps of Hastings who will be repairing the damage to NetFlix and Qwikster for a long time to come.