Netflix: When a new style business screws up in old style ways

Over the past decade, Netflix has demonstrated how a new business can redefine a market. First with its lightning fast DVDs-by-mail service, and then through its streaming video offerings — all by monthly payment plans rather than item-by-item rentals — it has changed how millions experience and pay for home entertainment.

In recent months, however, Netflix has taught us that even supposedly cutting-edge business leaders can screw up in inexplicably clueless ways:


First, over the summer, it announced big hikes in monthly subscription fees for customers of its DVD and streaming offerings. The announcement set off a firestorm of criticism. Netflix lost a chunk of its customer base, and its stock value started to head south.

[Personally, I was unhappy about the change, but not to the point of protest. In my opinion, Netflix’s subscription fees remained a pretty good deal for someone who enjoys their DVDs and streaming videos as much as I do.]


Next, Netflix pulled its whopper of a mistake. A few weeks ago, its CEO e-mailed all subscribers announcing that (1) we’re sorry for raising our monthly fees (GOOD); (2) we’re not rescinding the fee hikes (NOT SO GOOD — YOU’VE JUST APOLOGIZED FOR RAISING THEM); and (3) we’ll be separating our DVD and streaming operations into two businesses, requiring you to visit different websites to maintain your accounts (TRULY EPIC STUPID).

Customers and investors reacted with a vengeance.

[That’s when I called Netflix and cancelled my streaming video service, which I use much less than the DVDs-by-mail, explaining that I’d prefer to stick with the convenience of one website.]

Less Dumb

Finally, the message sank in: Earlier this week, prompted by more customer and shareholder outcry, Netflix announced that its DVD and streaming operations would NOT be divided into separate businesses.

[I don’t think I’ll be reinstating my streaming video service. I’m trying to watch my expenses, and I can live without it. Sorry, Netflix, you messed up.]

Old fashioned business judgment

Netflix forgot to put itself in the place of its loyal customers, a lesson that goes back to the first time anyone tried to build and maintain a business.

It started with the badly handled increase in subscription fees.

That was followed by a condescending “apology,” topped by the boneheaded decision to break the business into two units with separate websites, thereby trampling the easy convenience that has made Netflix a customer favorite.

A few bad decisions are all it takes for a popular and profitable business to chase away customers and drive down its value. Netflix’s mistakes attest to the fact that leadership and management always boil down to decisions made by human beings, shorn of any digital bells & whistles.


P.S. Oh, and readers, forgive my local bias, but if you want an example of how an old style business screws up in old style ways, do follow the hari-kiri-like post-season meltdown of the Boston Red Sox.

3 responses

  1. P.S. Oh, and readers, forgive my local bias, but if you want an example of how an old style business screws up in old style ways, do follow the hari-kiri-like post-season meltdown of the Boston Red Sox.

    That’s as epic a case of FAIL as I’ve seen in a long time. Add institutional and individual arrogance to disregard for your customer base. Fold in a large bowl of “stop trying.” Stir in a few stupid acts, bake under the spotlights of the local sports media, top with toasted bread crumbs from the Sausage Guy’s leftovers. Voila!

  2. I haven’t ever gotten into Netflix, so I hadn’t heard the news. I’m curious if these decisions were made by new leadership either trying to make a splash – or not knowing the business?

    • This was a decision made by a veteran core leadership team — some of the very same folks who turned Netflix into a success. That’s why it’s such a case study in how successful leaders can make terrible mistakes. Inexplicable, really!

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