October 10, 2011, 10:37 AM — If you're a Netflix shareholder, the positive takeaway from Monday's news that the company is abandoning an unpopular plan to separate its online streaming service from its DVD-by-mail service is that top management finally is learning from its recent mistakes.
That certainly was the prevailing reaction on Wall Street, where shares of Netflix (NASDAQ: NFLX) jumped as high as 11.29, or 8.8 percent, to 128.50 in early Monday trading.
In a blog post, Netflix CEO Reed Hastings explained:
It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.
This means no change: one website, one account, one password… in other words, no Qwikster.
But there's a negative takeaway from Monday's decision, for it serves as a reminder that Netflix seems to have lost touch with its customers, or at least is suffering from a string of poor decisions that through last Friday had sent shares down 60 percent since July 12.
That was the day subscribers began turning on Netflix, which announced a 60 percent price hike and a split of its video streaming and DVD-by-mail offerings into separate services. The decision sparked subscriber cries of betrayal and promises of defection to other DVD services such as Redbox or Blockbuster.
The company tried to weather the storm of outrage, while acknowledging it expected to lose some subscribers. On Sept. 15, shares took another hit when Netflix revised downward its third-quarter estimates for U.S. subscribers by 1 million.
In issuing the new guidance, Hastings stuck to his guns, writing in his blog, "We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come."
Just three days later, however, Hastings issued a belated apology:
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.
But Hastings used the Sept. 18 mea culpa as a Trojan horse to sneak in the announcement of Qwikster. It didn't work. Subscribers ignored the apology and focused their ire on the company's tone-deaf decision to force customers who want DVDs by mail to visit a separate site (Qwikster) and create a separate, billable account.