How Netflix lost a year, and our confidence

How Netflix lost a year, and our confidence

Looking over the wreckage of ill-considered price hikes, ill-advised videos, and the ill-conceived Qwikster spin-off, it's hard to reconcile that Netflix of the last tear with the savvy, disruptive, almost prescient upstart service that was a favorite of iPhone, iPad, and Apple TV users. Yet CNET's Greg Sandoval has done just that, and lays the blame cleanly at the top.

[Netflix CEO Reed] Hastings was wrong. The price hike and the later, aborted attempt to spin off the company's DVD operations enraged Netflix customers. The company lost 800,000 subscribers, its stock price dropped 77 percent in four months, and management's reputation was battered. Hastings went from Fortune magazine's Businessperson of the Year to the target of Saturday Night Live satire.

Netflix still hasn't recovered from that single season of folly, and even if they one day do manage to succeed beyond their previous highs, or beyond anyone's wildest expectations, it still cost them a year, a fortune, and a large part of their reputation.

It's what happens when any company forgets what their business is, and who their customers are -- including the Apples, Googles, and Microsofts. Missing the mainstream PC market cost Apple years and billions; missing the internet and mobile cost Microsoft years and billions, and missing social cost Google years and billions.

Reed Hastings stopped listening, and that's when the trouble started.

It's a cautionary tale for any business, and it happens more often then we'd like to admit. Smart, creative, powerful visionaries start to think they need no editing, no argument, and no second guessing.

It's why we got everything from the Star Wars prequels to Qwikster. And it's something any successful company needs to be scared to death about, and relentlessly working to avoid.

The article is long, but definitely worth a read. Arguably this was a vital lesson for Netflix to learn. Apple found out once that everyone is beatable, and they came back stronger. Netflix could as well.

Source: CNET

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

How Netflix lost a year, and our confidence


The title is a bit dramatic, I have been a Netflix user for years and have not lost confidence or being otherwise disapointed with what Netflix offers. iTunes has a better sellection, but it is much, much, much, much more expensive. I think Netflix is a great service and I use it regularly.

The only CEOs who don't make mistakes are the ones who don´t even try, and all this monday quarterbacking is a bit unfair. Who has Steve Jobs ever listened to? He was a great CEO exactly because he did't listen to anybody, he trusted his instincs. Hastings built a company with a current market cap of 4.7 billion dollars and his run at Netflix is not over yet. As for nose dives, after Apple I think everybody should wait a bit before handing the veredict.

I think that was the point of the article: that Hastings lost the people who could stand up to him and get him to change his mind when he needed to.

Jobs had that. He changed his mind often. At D10 Tim Cook said Jobs' ability to do a 180 was one of the things he valued the most about Jobs.

Hmmm. I have to agree with the very first line of the first person to reply to the post. The title is dramatic. Netflix lost 800,000 customers, but have gained 3 million in the first quarter of 2012 according to their own earnings call that took place in April. Netflix is doing better than ever, they have more subscribers than ever, and their apps on different devices and platforms are ever improving. Here is a quote from the earnings report in April 2012:

Reed Hastings - Netflix Inc - CEO
"Well, we had a fantastic Q1, adding nearly 3 million members to our global subscriber base.We had strong results in all of our territories, including
the US. Our gross adds are consistent with our historic patterns. Our churn is consistent with our historic patterns, and we are feeling very good
about the year.
If you look at adding 7 million net adds, which is our target for the year, and you compare that to 2010, where we also added 7 million net adds, in
2010, that was 7 million on top of 12 million starting numbers.This year, that 7 million on top of 22 million starting members. It's a mathematical
effect, if that's true, with steady churn, that in adding 7 million on top of 12 million versus 7 million on top of 22 million, that there will be a significantly
increased seasonality of net additions. So, the business is performing exactly as we had hoped. We are continuing to execute on all of the key
dimensions, but the artifact of having 7 million net adds on 22 million increases the seasonality relative to 2010. And we tried to demonstrate that
or illustrate that in our appendix, showing this phenomena."

With no cable, I rely on NetFlix and Hulu to watch all my shows. So I am hoping that they can turn things around and get more content. I plan on never singing up for cable again. Internet streaming is the further for me. I like not having to pay for channels that I will never watch.

That's exactly what i do. My only issue is that it takes a long time for seasons to make to netflix, I know that;s a licensing issue but i would love for them to close the gap a little. Either way, I'm with you, I'll never go back to cable. Streaming is the future and Netflix and hulu cover the bases. iTunes, Vudu and my playstation(i.e. Video Unlimited) cover the rest. Hopefully this content issue is resolved, I'll stick around for the time being and see how it plays out.

I still love netflix will continue to be a member until they day they are gone or something comes alone that is better. I dont care how many customers they lost I just want my service to work. If it goes under oh well I dont mind. Will it suck yes it will but what can I do. Reed has a bad sense of direction

It would be nice to be even able to access Netflix or Hulu. One of the few disadvantages of being Australian...

I've been a Netflix user for years, and to this day, they have yet to step up. I just canceled my two Bluray Disc subscription as it was rare these days that my wife and I use discs. We frequently rent on our cable operator, iTunes or Netflix streaming (holding on to the discs for months without even watching). That being said, it's real simple: Netflix needs to have new movies [available for streaming] now, not a few months after it comes out (or never). This goes for any service of that type. I know this is mostly up to the studios, but that doesn't change the fact that it needs to happen. You need movies people WANT to watch. How many times am I supposed to watch Die Hard? Even some old movies you'd expect aren't there. Figure out how to take the chains off the movies we can't watch and we have a deal. For our type of usage, we'll most likely cancel Netflix altogether and stick with iTunes rentals.

This is EXACTLY how I feel about Netflix. Somehow, someway, somebody needs to strike a deal with Hollywood to get content available immediately. I truly hope that Steve Jobs' "iTv" vision was to be able to circumvent traditional cable and create a new system of on demand streaming. Forget broadcast tv, with the exception of live events like sports, and make it strictly subscribe and stream. Simple. It's about time.

Sure, iTunes is nice, but it's expensive. Realistically, you can't replace cable with it. It's a nice compliment to Netflix, etc.. However, if you are into current mainstream content, paying several dollars for every title is absurd. I'm sure there can be a way for producers to make money AND provide affordable on demand streaming content.

I think we are just stuck in the traditional model that is cable tv. Greed doesn't help matters either.

Amazon has more updated movies available streaming through the PS3 you can rent movies yes they cost more anywhere from $2.99 to 4.99 a time but I have started streaming Amazon instant videos instead of Netflixs because Netflixs is so behind in the movies. They are like a year or so behind.