Monday, September 19, 2011

Re Netflix--CEO Reed Hastings' open letter--and my open letter of reply.

Dear Terry,

I messed up. I owe you 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. Let me explain what we are doing.

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. 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). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

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. DVD is a great option for those who want the huge and comprehensive selection of movies.

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 need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: 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.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the and websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely 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 similar for many of you.

I want to acknowledge and thank you for sticking 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

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

Dear Reed,

Thanks for sending your letter of explanation/clarification.

I realize that streaming videos have been predetermined to be the wave of the future.  After all, in the current economy, who wants to lower their profit margin by printing allegedly-hard-to-sell physical copies of a movie/TV series? 

And Heaven forbid that the studios take partial responsibility for what the trade press calls "the decline in DVD sales" by printing far too many physical copies of hit films on DVD than could be realistically sold (thinking of Paramount/Viacom with particular regards to INDIANA JONES AND THE CRYSTAL SKULL and J.J. Abrams' STAR TREK).

Perhaps you're dreaming of a future where Quixster can quietly dissolve and Netflix will regain market dominance.  Maybe this could happen once streaming videos can boast every feature of DVDs (including being able to watch a film/TV episode with a commentary track)--plus visual quality equal to/surpassing what viewers can enjoy on Blu-Ray.

Yes, I'll remain a customer of yours.

But I can't help but risk your discomfort by saying
that a mere rebranding of your DVDs-by-mail service won't stem the loss
of the customers you could count on earlier this year (those which defected from the price raise--and now give the wobbling Blockbuster Video a new lease on life).

With utmost sincerity,

Terry McCarty
Los Angeles, CA

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