Netflix Reveals How to Make Disgruntled Customers Even Angrier

Typically, when one apologizes and admits a mistake, he shows signs of truly righting the wrong.

Netflix is not typical.

Even after customers and media outlets expressed outrage with its decision to unexpectedly—and substantially—raise the price for those customers who subscribe to its streaming and mailed DVD services, Netflix confidently, if not arrogantly, maintained the decision to raise its prices. Cavalier was the name of the game in Netflix’s letter to investors; the company contended that even if a few customers were discouraged in the short-term, the value of its offerings, even with a 60% higher price tag, would keep the business booming.

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One certainly cannot call Netflix "wrong," but early data did show the price increase had a more substantial negative impact on subscriptions than first forecast. Netflix revised its subscriber estimates down, sending the stock price, one which had already fallen after the company lost its content license with Starz, plummeting.

With the negative impact on business catching up to that of customer sentiment, Netflix CEO Reed Hastings had no choice but to apologize in a blog post Sunday night.

"I messed up, I owe everyone an explanation," wrote Hastings. "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…I offer my sincere apology."

The opening of Hastings’ blog seemed to be hooking readers for the announcement, "We have decided to re-integrate our streaming and DVD services and revert back to their original price point." Or, if not that, "In the interest of assuring Netflix customers receive unrivaled value for their money, we’re proud to announce this blockbuster licensing deal with ___."

Instead, readers get a vow from Hastings to finally explain why Netflix did what it did.

They don’t get the actual explanation, though. Hastings talks about why the streaming and DVD services are both awesome and why they are, effectively, separate businesses, but he never gets at the core question on customers’ minds—"If the quality of the Netflix library and the value of the service is not going to clearly increase by 60% minus inflation, why am I paying an extra 60%?"

Hastings then makes his big announcement—Netflix will be spinning off its DVD-by-mail service into a separate business with the name "Qwikster." Indeed, the response to those customers who expressed disappointment over the decision to charge separately for DVD and streaming services is to create a further divide between them.

As with previous Netflix correspondence on the matter, little substantive is provided. Hastings says the split will allow the company to more efficiently manage the two businesses, and he restates the streaming business’ commitment to improving its content library. The latter, of course, comes without new evidence to counter what subscribers already know for a fact—in the loss of Starz, Netflix’s library is already down one key content provider.

He even oddly cracks, "There are no pricing changes (we’re done with that)." It is probably a safe bet he does not mean combined services from Netflix and Qwikster will revert to the previous $10 price point, therefore still leaving customers without a suitable justification for the 60% price hike.

Amid the surplus of ambiguity and the introduction of new customer service issues (namely, the DVD and streaming businesses will no longer be integrated at all, complicating future billing issues and removing the ability to instantly determine whether a DVD rental is also available for instant streaming), Hastings reveals only one new perk: the DVD service will finally add video games to its library.

For some customers, this perk will be enormous and more than justify paying Qwikster’s separate $8 fee. At $2/night, competitor Redbox’s fee for video games could prove pricey for heavy gamers, while use of the Gamefly mail service requires a subscription outside the Netflix umbrella. If Hastings is right that many customers have been asking for video games, this announcement is a fairly big deal.

The problem, however, is that it is effectively non-responsive to the issue that created the firestorm in the first place. While some subscribers will welcome the addition of a gaming option, others will see it as a non-factor. The same can technically be said for any specific movie or television show that gets added to Netflix’s catalogue, but the difference is that 100% of Netflix’s subscribers value that kind of content. Even if some individual titles carry no impact, since every Netflix customer wants the best movie and television library possible (that is the only content for which they subscribed), improvements to that library are across-the-board value-adds.

Since games were not in play when customers made the decision to subscribe, there is no consensus on how customers will value improvements to that library. The gaming feature is a nice bonus, but it cannot be considered a sufficient response to concern about the pricing.

Moreover, Hastings’ supposed commitment to candor, underscored by the use of lines like "Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight" and his decision to interact with commenters on Facebook, has simply not yielded the one candid response customers have wanted for two months—"Why?"

Randomly throwing out product changes, whether odd (turning the DVD business into Qwikster), beneficial (video game service) or vexing (the queue issue that will emerge if Netflix and Qwikster are not integrated), keeps a company in the news. It keeps Netflix on the tip of the tongue.

But it does not do what Netflix publicly failed to do since first announcing the price hike. It does not provide tangible, unambiguous justification for the increase, and it does not restate a commitment to giving the customers what they want.

Hastings ends his blog with the comment, "Actions speak louder than words. But words help people to understand actions."

Neither Netflix’s actions nor words achieve their supposed intent—helping disgruntled customers understand the changes and renew their appreciation for the Netflix service.

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