CEO apology, Qwikster won't help Netflix

Reed Hastings' belated mea culpa appears geared more toward Wall Street than subscribers

Netflix chief executive Reed Hastings needs a better PR team. Or maybe he needs to listen to the PR pros he already has.

Hastings published a blog post Sunday in which he 1) announced that Netflix would spin off its DVD-by-mail service and rename it "Qwikster," and 2) apologized for poorly communicating a 60% price hike announced in July, a misstep Hastings attributed to "arrogance."

(Also see: Can Netflix recover from self-inflicted wound?)

Here's some of what Hastings wrote:

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.

OK, that's a pretty good start. Hastings goes on to explain the business reasons behind the decision to raise prices and to restructure Netflix's offerings, giving customers a choice of paying a monthly subscription for either DVDs-by-mail, video streaming, or a package that includes both.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. ...Companies rarely die from moving too fast, and they frequently die from moving too slowly.

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. ...[N]ow 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.

Hastings then goes on to explain that Qwikster "will be the same website and DVD service that everyone is used to," with a video games upgrade option thrown in.

The problem, though, from the viewpoint of many Netflix customers is that now they are required to have two different accounts (one for Qwikster and one for Netflix) if they want to get DVDs by mail and stream videos, and they'll also be billed separately.

While this may sound trivial to some people, to many others it creates more hassle with no extra benefit. Which, to one extent or another, blunts the effectiveness of Hastings' apology.

Also tainting the apology is the fact that it comes days after Netflix shares plunged nearly 20% Thursday when the company revised downward its third-quarter estimates for U.S. subscribers. One gets the impression that Hastings is more concerned with the reaction of Wall Street than subscribers.

It's probably true that Netflix's real mistake wasn't the amount of the price hike ($6 a month for both DVD-by-mail and streaming), but how it was communicated. Still, I think Sunday's announcement would have been more effective if Hastings had announced a partial or temporary roll-back of the rate increase. In other words, offer people something besides an apology that appears to be aimed at investors rather than subscribers.

As it stands, Hastings' apology and announcement of Qwikster likely won't be effective as damage control, and might even further alienate subscribers.

Shares of Netflix (NASDAQ: NFLX) were up 2.22, or 1.4%, to 157.41 in Monday's late-morning trading.

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