My two cents

" … there is a difference between moving quickly—which Netflix has done very well for years—and moving too fast, which is what we did in this case” ~ Reed Hastings, CEO Netflix"

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It’s incredible to see Netflix reverse course on what was such an enormous strategic decision. While the initial announcements they made to increase prices and establish Qwikster for DVD rentals were neither timed nor communicated effectively, the strategic basis for these decisions was 100% tied to where the movie industry is headed - and 100% correct.

Separating the streaming and DVD business would have allowed Netflix to a) invest more directly in the streaming business - without the cost and management overlay of the DVD business; b) focus design and development time on the streaming user experience versus having to split hairs with the DVD business; and c) focus on better competing against Amazon, Hulu (still on the block for the moment) and others in a 100%-online-movie-domain.

As consumers and as markets though, we called fault and said Netflix betrayed us and our (current) needs. We didn’t stop to think about the future state movie rental world that Netflix wants to take us to, and that we inevitably will want to be in. As a result, Netflix lost 60% of its share price in the matter of weeks, and there were endless rumors about Netflix as a takeover candidate.

Now Netflix has backtracked on their forward-looking strategic decision (at least in the near-term) - where does this news now leave Netflix, consumers, and the markets?

For Netflix, it leaves them without the flexibility to really build the streaming business they envision for fear of negative consumers and market reactions (it should be noted though that prior to this debacle, Netflix’ stock price was taking much smaller hits for not developing its streaming platform as fast as Amazon). 

For consumers, it means our fast-approaching reality of living in a fully-online-movie-world has now been pushed further out. Based on the online and media reactions, we seem to think we don’t want this reality to materialize – but deep down inside, we actually do, and now Netflix is not in a leadership position to get us there.

For markets, speculators will feel validated since they single handedly dragged Netflix’ stock price into the depths of despair the last few weeks for what they perceived as bad decision making. Netflix’ stock price will likely recover well today (not to pre-decision levels, but at least 5-10% more than where it closed on Friday.

Netflix’ situation is ironic because we’re always asking for companies to be innovative, forward looking, and to foresee consumer needs before we see them ourselves (a’la Apple and the genius that was Steve Jobs), and yet, in this case, instead of rewarding Netflix for doing exactly this – we faulted them for making us move too quickly. Of course, each decision Netflix made could have been timed and communicated much more effectively – but we allow companies like Facebook and Google enormous missteps on a daily basis (and with our personal and professional information and privacy).

What was so different in this case?

The only tangible distinction is the cash that transfers between us and Netflix for use of their streaming and DVD services – it somehow empowers us to pass judgment on their decision making without complete market information. By comparison, if we were paying Facebook and Google+ for their online and social media services, would their stock prices have fallen/fluctuated as much with each privacy blunder we’ve seen them pursue over the years? Somehow I don’t think it would have. Netflix has somehow been positioned as a punching bag in the online-movie-domain, and though this recent decision is not ideal strategically, at least it will get them out of the “punching bag zone” for the near-term.

Reed Hastings’ blog post from September 18th, 2011

Reed Hastings’ blog post from October 10th, 2011

WSJ Coverage of the recent Netflix decision

7 months ago
  1. nasnyc posted this