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NetFlix CEO Sends Mea Culpa Letter To Clients: "I Messed Up. I Owe You An Explanation"

Tyler Durden's picture




 

Now that Netflix has lost its lustre, its coolness factor, and frankly, its cash flow (which it never had to begin with), here comes the Monday Morning Quarterbacking with some damage control from the CEO which is too little, too late. That said, if Whitney Tilson is re-shorting the company here, everyone should pile in ASAP.

From letter sent out to whatever clients are left (probably includes the perpetually renewing free trial "clients")

Dear ___,

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 qwikster.com 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 Qwikster.com and Netflix.com 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 Qwikster.com 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

 

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Mon, 09/19/2011 - 09:15 | 1684108 flyr1710
flyr1710's picture

so i guess losing 25% of your net worth and the company's market cap in 2 days will make you do this

Mon, 09/19/2011 - 09:21 | 1684127 SheepDog-One
SheepDog-One's picture

Many more bubble bursts coming next.

Mon, 09/19/2011 - 12:59 | 1685167 SamAdams1234
SamAdams1234's picture

Those aren't champagne bubbles in the bathtub!

Mon, 09/19/2011 - 13:13 | 1685226 SamAdams1234
SamAdams1234's picture

Boom .. there is another.

Mon, 09/19/2011 - 09:38 | 1684201 reading
reading's picture

Who said money doesn't buy humility....

 

 

Mon, 09/19/2011 - 10:25 | 1684404 UGrev
UGrev's picture

You could also say it this way: 
"Who says market forces don't work when driven by HUMANS..."  

Mon, 09/19/2011 - 11:59 | 1684908 Buckaroo Banzai
Buckaroo Banzai's picture

I love that the left-hand skyscraper banner ad showing on this page is for Netflix.

Mon, 09/19/2011 - 09:19 | 1684124 OnTheWaterfront
OnTheWaterfront's picture

Comcast = xfinity

Netflix = Qickster

Mon, 09/19/2011 - 10:58 | 1684572 Dr Hackenbush
Dr Hackenbush's picture

net nuetrality/data limits = cable subscibers = >comcast monopoly 

Mon, 09/19/2011 - 09:21 | 1684129 knukles
knukles's picture

Where's that dweeb whose been pumping NetFlix all the time?
I need an explination.  All I've been holding are long bonds and PM and been kept awake alll night, every fucking night worrying why I didn't have everything leveraged up to the max and invested in Netflix.

I demand an apology for the angst and agita.

Dot.com 2.0

Mon, 09/19/2011 - 09:21 | 1684132 orangedrinkandchips
orangedrinkandchips's picture

As my old man always said...

 

"DAY LATE, DOLLAR SHORT"

Mon, 09/19/2011 - 09:23 | 1684137 fdisk
fdisk's picture

It's all about timing, so many shorts been burned by NFLX before it's actually dropped like a rock. Everyone was expected since near 50% float was shorts, but the timing is the key. Easy to say now.. I wish I could read charts from left to right instead of right to left.

Mon, 09/19/2011 - 09:26 | 1684160 Whatta
Whatta's picture

I wish I could read charts from left to right instead of right to left.

shit, I wish I had tomorrow's chart today. Then I might be right once in a while.

Mon, 09/19/2011 - 10:35 | 1684455 chrispycrunch
chrispycrunch's picture

You know what they said about the guy who could read the chart left to right? He read his own obituary in the newspaper a day earlier.

Mon, 09/19/2011 - 09:23 | 1684144 Seasmoke
Seasmoke's picture

well that is the Quickster way to Zero .....never saw a company fuck up more than this

Mon, 09/19/2011 - 09:24 | 1684147 buzzsaw99
buzzsaw99's picture

OMG WHAT A DUMBASS!

Mon, 09/19/2011 - 09:24 | 1684148 Whatta
Whatta's picture

its still a good short....

Mon, 09/19/2011 - 09:27 | 1684162 Cognitive Dissonance
Cognitive Dissonance's picture

Yup, I found my "Dear John" Netflix letter in my in-box this morning as well. It gave me the warm and fuzzys. Then I realized I needed to change my Depends.

Mon, 09/19/2011 - 10:02 | 1684315 mahalopamala
mahalopamala's picture

Me too- I mean about the letter- no adult diapers here.  It is funny to me that a letter was even written.  Oh, that's right- since many folks are ignorant of the fact that our money is basically worthless and the fact that businesses are tanking everywhere- so many were shocked that netflix changed their pricing structure that the wise and powerful marketing/ PR department (aka Bernays boys) nudged CEO to come to the customers all "hat in hand".  I could care less.

I still look forward to the envelope in the mail. I get to watch what I want, classics, and shows of substance- not all the drivel on the networks. If they tank, no problem.  I have lots of friends that have extensive collections on DVD.  I also own thousands of books- so who cares.  Entertainment is not something you can purchase- it comes from within.

Mon, 09/19/2011 - 09:28 | 1684166 snowball777
snowball777's picture

AOL and Borders....perfect models to emulate,  if what you want is to go BK.

lulz

 

 

Mon, 09/19/2011 - 09:30 | 1684172 Careless Whisper
Careless Whisper's picture

Hey I got an idea, let's change the formula for Coca-Cola.

 

Mon, 09/19/2011 - 09:31 | 1684178 somethingelse
somethingelse's picture

To paraphrase Benmoshe (CEO of AIG) recently "better to have a well-known brand that's been through the mud, than a new name nobody knows."

this is not a good idea.  Netflix has been building its brand for 12 years now.  

history lesson:   Homegrocer.com  changed to WebVan.com  and less than a year later....out of business

Mon, 09/19/2011 - 09:34 | 1684182 stuman
stuman's picture

I wasn't surprised by the price adjustment, streaming has increased an incredible amount, the  cost to Netflix has got to be huge for that lvl of bandwidth nationwide.

Not sure why all the hoopla, the original release on the changes made sense to me at the time and still does.

I personally don't stream and only do 3 dvds at a time, my cost went down. But if I chose to stream I certainly understand the cost involved.

But agree, the name change/division doesn't seem like the best of moves...  

Mon, 09/19/2011 - 09:36 | 1684189 for shizzle my ...
for shizzle my nizzle's picture

I thought "Quickster" was The Stool of Omaha's pet name for Becky Quick..........

Mon, 09/19/2011 - 09:39 | 1684193 fdisk
fdisk's picture

GOLD pushing down again. That wasn't the case lately when Markets are down 170 points, strange.  Amazing with all these events, Gold turning RED.

Mon, 09/19/2011 - 09:47 | 1684254 WonderDawg
WonderDawg's picture

If deflation is indeed in the cards, expect all asset classes to decline pretty much in unison.

Mon, 09/19/2011 - 10:08 | 1684339 ww2vet
ww2vet's picture

gold fails and fails-1500 before 2000-zh fools!

Mon, 09/19/2011 - 11:26 | 1684747 OldTrooper
OldTrooper's picture

Let's hope so...then I can buy substantially more.

Mon, 09/19/2011 - 09:40 | 1684218 FLUSA.com
FLUSA.com's picture

I am a member and I didn't get this email.....I have to get it on zerohedge.....I know they have my email.....BECAUSE IT IS HOW I SIGN IN.....but I digress....

Mon, 09/19/2011 - 11:24 | 1684734 haskelslocal
haskelslocal's picture

Makes you wonder about the authenticity of the article. It is the internet afterall and even ZH can fall prey to a bogus ploy or two...

Mon, 09/19/2011 - 09:49 | 1684269 Janice
Janice's picture

I quit Netflix when I found out that Canadians were getting a cheaper rate than the US citizens. I actually liked Netflix because I could keep movies in queue and I didn't forget about movies that I wanted to see. However, the CEO was so smug about the price disparity that I opted out. I read an article where he basically said, "Yeah, we charge Canada less, get over it." We watch less movies, but I just felt that the CEO was too good for my little pennies.

Mon, 09/19/2011 - 09:55 | 1684295 spanish inquisition
spanish inquisition's picture

"To make up for the loss in confidence, we are going to print more stock to increase liquidity in the market. We have also opened up stock swap lines with LinkedIn and Facebook to ensure price stability."

Mon, 09/19/2011 - 09:59 | 1684297 edwardscpa
edwardscpa's picture

Quikster - what a stupid name.  And splitting the two services?  Integration was one of the cool things about Netflix.  Somebody needs to fire this guy and hire a new guy who says - forget all that, let's turn back the clock and carry on.  Now about that 100x PE...

Oh yeah, I quit Netflix when Verizon jacked up the prices of their Phone/Internet combo plans to the point where it was about the same price to get Phone/Internet/TV.  Now I have movie channels, DVR, On-Demand, cable, etc. at much better quality.  This is a no-brainer trade; if you control the pipe, as Comcast and Verizon do, you can pretty easily shut down Netflix w/ your pricing schemes as I described.

Mon, 09/19/2011 - 15:47 | 1685822 Dr. Eldon Tyrell
Dr. Eldon Tyrell's picture

Reed went Full Retard.

 

Should have at least tried to get a name like "QWIKflix" and contrast that with "NETflix" so people could differentiate the services a little better.

Either way, lame move.  I've adjusted my subscription behavior everytime they jacked with the terms/rates.

 

http://vimeo.com/3945205

 

 

Mon, 09/19/2011 - 09:57 | 1684301 Moe Howard
Moe Howard's picture

Netflix made a boo-boo comparing his company to AOL and dial up. 

He is failing the same way. At least they are divorcing the two halves.

Mail DVDs are soon to fail along with the Post Office.

Streaming will fail as Netfixx has to start paying for bandwidth [the last 1/4 mile].

He is riding on ISPs - ISPs are the natural providers of streaming video, not a third party. 

My 3 cents.

Mon, 09/19/2011 - 10:00 | 1684309 drunkagain
drunkagain's picture

way to reduce the brand value of your name.

i'd guess that alot of people who watch streamed netlix movies may have migrated from the DVD service; no longer....

now with seperated billing and accounts , they have increased the switching cost/hassle leveling the playing field with their other streaming competitors for those looking for streaming service (which is the future of this biz)...l'm going to try shorting the spike and this is another poor strategy idea and hopefully another third strike is coming.

Mon, 09/19/2011 - 16:06 | 1685943 Dr. Eldon Tyrell
Dr. Eldon Tyrell's picture

Actually,

 

The opposite may be true...you'd be amazed at some of the ripping/encoding/media playback solutions out there.

Current streaming titles are pretty poor and there are still a lot of good titles still only available on DVD.

Yeah, not everyone is gonna bother with ripping/encoding/media playback...but its a nice way to create a buffer of movies to watch while
still keeping the stream of DVD's to the mailbox at a reasonable rate.

I suspect Reed's next trick will involve...having new movie exclusives only available via streaming before the second
class Quickster citizens get access to them. 

Mon, 09/19/2011 - 10:04 | 1684329 Infinite QE
Infinite QE's picture

Phase two: spin off Quickster, ipo it and collect millions in management fees.

Mon, 09/19/2011 - 11:57 | 1684896 Buckaroo Banzai
Buckaroo Banzai's picture

Brilliant. I think we have a winning idea here.

Mon, 09/19/2011 - 10:05 | 1684332 Fix It Again Timmy
Fix It Again Timmy's picture

Why watch movies when you can read Zero Hedge?

Mon, 09/19/2011 - 12:13 | 1684963 Jena
Jena's picture

Why watch movies when you can read Zero Hedge?

 

Occasionally I like to escape via fiction.

Mon, 09/19/2011 - 10:41 | 1684498 Ruffcut
Ruffcut's picture

The puts re very pricey. I like the steaming, but selction for b movies is weak.

I can't figure why cable companies don't charge less than 3 bucks for on demand movies and crush these fuckers. The premium channels are probably scrambling their shit models, too.

Then again 8 bucks for streaming is pretty cheap. THe comedy is better than cnbs, too.

Mon, 09/19/2011 - 14:49 | 1685594 tamboo
tamboo's picture

fantastic selection of b movies:

http://cinemageddon.net/

Mon, 09/19/2011 - 10:44 | 1684509 artx00
artx00's picture

they eliminated competition and thought they were monopoly. Thce cancellations reminded them they are not a monopoly

Mon, 09/19/2011 - 11:26 | 1684704 haskelslocal
haskelslocal's picture

Quikster has got to be the worst name change/creation in history and I'm sure it will play out that way on profits. This CEO doesn't think it's already confusing and now there's going to be a new website that comically isn't even ready yet? Gawd.... 

Mon, 09/19/2011 - 16:14 | 1685979 Dr. Eldon Tyrell
Dr. Eldon Tyrell's picture

Probably didn't want to pay for a name that makes sense like QWIKflix or MAILflix versus NETflix.

At least you could differentiate the services with names like that.

 

 

Mon, 09/19/2011 - 11:23 | 1684729 upWising
upWising's picture

Qwikster .. so changing the name is going to  make it all warm and snuggly.  A new logo will solve all problems.

Qwikster .. should be called DUMPSTER.  I think that's what most people will do..

ALCOHOL, TELEVISION, FAITH IN THE SYSTEM.

Mon, 09/19/2011 - 11:24 | 1684730 upWising
upWising's picture

Qwikster .. so changing the name is going to  make it all warm and snuggly.  A new logo will solve all problems.

Qwikster .. should be called DUMPSTER.  I think that's what most people will do..

ALCOHOL, TELEVISION, FAITH IN THE SYSTEM.

Mon, 09/19/2011 - 11:26 | 1684745 ElTerco
ElTerco's picture

Wow.  This guy clearly doesn't understand the point of branding.  It's one thing to mess up the first time with the pricing, and quite another to mess up so badly right afterwards by destroying the reputation the brand has built  and introduce confusion into the product being offered.  He took a quickly growing company, and turned it into a disaster area almost overnight.  Hopefully, the board will let him go immediately.  If not, it just proves how corrupt US corporations have become at the top.

Mon, 09/19/2011 - 11:32 | 1684780 Uncle Remus
Uncle Remus's picture

Well, that reeks of desperation.

Mon, 09/19/2011 - 11:33 | 1684791 adr
adr's picture

As always the, we're going to split our company up line is great for Netflix stock today with it being up $3 already this morning.

Streaming is dead in the water because of the ISPs. They are all implementing bandwidth caps and throttling speed. I tried Netflix streaming on my 6mb connection I pay $40 a month for and it doesn't work well at all. I could pay $90 a month for 10mb and the streaming would be better but I don't need that speed for anything else. Even with the higher speed I would still run into the bandwidth cap if I watch 10 HD movies a month and that is if I don't move any other traffic over the internet.

However if I use the On Demand system through my provider I can watch as many movies as I want. It will cost me $5 a movie but that route will be cheaper than Netflix plus a speed boost.

Until we get some competition in broadband streaming for most people is not an option. I remember paying $17 a month for broadband ten years ago and everyone said the price would go down as more people signed up. Nope, the opposite happened. Just like everything else in bizzaro world.

Is Netflix selling off to a point still 10% higher than the 52 week low really a selloff? It just shows how much of 2011 was spent ramping BS stocks to the stratosphere. Even with the selloff Netflix still trades with a P/E of 40.

Erasing all the gains of 2011 still leaves the market with a stratospheric bubble valuation.

Mon, 09/19/2011 - 11:38 | 1684820 Milton Waddams
Milton Waddams's picture

Reads like a guy that knows the stock price of his company is about to lose in excess of 90% of its value.  What are the five phases of greif again?  Oh yeah:  denial, anger, bargaining, depression, acceptance.

Mon, 09/19/2011 - 11:59 | 1684911 Zymurguy
Zymurguy's picture

Saw this over on Marketwatch...

 

Quickster = Quitster

 

Not only have we had to endure a 60% increase in the cost of the service now we have to visit two separate, non-integrated websites to use the services.

Is that galactically stupid or what?  I'm joining the "Quitster" ranks tonight.

This guy better get an apology letter together for the wife and kids - I'm sure he'll be joining the unemployemnt ranks soon.

Mon, 09/19/2011 - 14:29 | 1685523 TheLooza
TheLooza's picture

  have you EVER seen a retail company squander goodwill faster?

 

this is on par with lebron, tiger, BP, vick etc.

 

I can scarcely imagine screewing this up worse.

Mon, 09/19/2011 - 16:56 | 1686136 DavosSherman
DavosSherman's picture

Fucking clueless MORON!

Tue, 10/25/2011 - 18:44 | 1810274 jedimarkus
jedimarkus's picture

Hoow about you send me a check you bastard!

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