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Netflix Chief Reed Hastings' Stock Options Cut by $1.5M After Qwikster Debacle

Reed Hastings
Hector Viras/Latin Content/Getty Images

The exec also took the blame for mismanaging the announcement of a price increase, which angered subscribers.

Netflix CEO Reed Hastings will pay a $1.5 million penalty for blunders that alienated the video subscription service's customers and pulverized its stock.

The punishment will be delivered with a 50 percent reduction in his stock option awards next year, according to regulatory documents filed Thursday. Instead of the $3 million stock option allowance he received this year, Hastings will get $1.5 million in 2012. His base salary will remain unchanged at $500,000.

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It would have been difficult to make a case for giving Hastings a raise coming off a year in which his decisions transformed Netflix from Wall Street darling to bum. The company's stock price plunged, and subscribers fled in a rebellion against a U.S. price increase of as much as 60 percent. The aftershocks of the subscriber exodus are expected to saddle Netflix with a net loss next year, the first time that has happened in a decade.

Netflix Inc. declined to comment on the changes to Hastings' compensation.

Hastings has repeatedly taken the blame for mismanaging the announcement of the price increase in July and then making things worse two months later by trying to spin off Netflix's DVD-by-mail rental service into a separate website called Qwikster. Since scrapping that idea in October, Hastings has been trying to repair some of the damage.

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That will probably take a while. Netflix's stock price has plunged 75 percent since mid-July to wipe out $12 billion in shareholder wealth. The backlash surprised and humbled Hastings, who revealed at an investor conference this month that he once thought Netflix's stock would hit $1,000. Netflix's stock gained $2.87 Thursday to close at $73.84, down from its July high of just under $305.

Hastings' missteps also have cost Netflix at least 800,000 subscribers. That's how many customers Netflix lost during the July-September period. Netflix has said the exodus extended into October and November, though it isn't providing specifics until it reports fourth-quarter earnings next month.

Some analysts have suggested Netflix should consider rescinding at least part of its price increase, but Hastings has brushed aside the notion so far. He has predicted that the bad moves will eventually forgotten if Netflix's service for streaming video over high-speed Internet connections keeps growing throughout the world as DVDs slowly fade into obsolescence.

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Moreover, Netflix did manage to make dramatic strides in 2011 and cement its place as a major player in Hollywood. Among its accomplishments: It plunged into original content by partnering with producers Kevin Spacey and David Fincher on the big-budget "TV" show House of Cards that will debut in 2012 (with Spacey set to star); it resurrected Fox's cult favorite Arrested Development with new episodes coming exclusively to Netflix in 2013; its presence as a bidder has increased the value of library TV and film content several-fold; and it expanded its streaming service so that it is now in 45 countries.

And Netflix still has 23.8 million subscribers in the U.S., and a Knowledge Networks study indicates that 35 percent of all Americans ages 13 to 54 use its service at least once a month.

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The company also has been driving viewership of independent films, like Take Me Home Tonight, a 2011 release from Relativity that earned just $6.9 million worldwide in theaters but is a hit on Netflix.

Meanwhile, Hastings is keeping his sense of humor about the past year. In a cover story about 2011’s biggest rule breakers for The Hollywood Reporter, he said that a Wall Street banker told him in December that just a year ago Netflix had been viewed with a mix of fear, envy and mystique. His response? "Now it's just pity."