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A Netflix mea culpa from its CEO mailed to customers late Sunday that also served as an announcement that it would separate its streaming from its DVD business went over like a lead balloon.
Not only did the stock sink another 7 percent Monday — continuing a slide that has more than halved the shares since Netflix announced a price hike in July — but negative comments on a blog post from CEO Reed Hastings were piling up.
In the post and his email to subscribers Hastings apologized for a lack of “respect and humility” when Netflix announced its 60 percent price increase, then he launched into a description of Qwikster, which will be the new name of the DVD service while the streaming service retains the Netflix brand.
By dusk Monday, more than 17,000 people had weighed in at the blog post. “Is this an apology email? Or a Terms of Service email?” one commenter wrote. “Was it a coincidence that you decided to bifurcate your business and rebrand one half of it at the same time you felt it necessary to apologize for pissing off all of your customers?”
Hastings said that Netflix and Qwikster will operate independently, including different websites and, for those who use both, separate entries on their credit card bills.
Analysts were mostly unimpressed, and accused Netflix of acting in haste without doing its homework.
They might have a point there: The @Qwikster Twitter address, for example, isn’t maintained by Netflix but by a racially insensitive, prolific curser whose account is adorned with a photo of a joint-smoking Elmo from Sesame Street. He recently tweeted that people “wanna buy my handle,” and he’s been offered $1,000 so far.
Netflix refused to comment about the @Qwikster controversy on Monday.
So unusual was the decision to split the company in two, not to mention the way it was announced in a letter that hit inboxes just prior to midnight, that some were theorizing that the changes aren’t exactly set in stone.
“Hastings already set the stage for further iterations with his letter, which said he needed to listen to customers more,” said branding strategist Adam Hanft of Hanft Projects. “It’s public experimentation. Things are happening so fast that there’s no time for testing, so they’ll announce it and see how consumers react.”
BTIG Research analyst Richard Greenfield wrote that, with its decision to separate DVD from streaming, Netflix’s business went “from pretty simple to puzzling.”
“Will the nearly 10 million streaming-only subscribers be as ‘sticky’ now that they do not have DVDs lying around their house that say ‘Netflix’?” Greenfield asked.
“For me the Netflix envelope has always been a source of joy,” Hastings wrote in his letter to subscribers. “The new envelope is still that lovely red, but now it will have a ‘Qwikster’ logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.”
Netflix declined to share an image of the new logo with The Hollywood Reporter.
Another change is that the Qwikster envelopes can also contain video games, which thrills some customers but worries some analysts.
“It is a quick way to lose money,” said Janney Capital Markets analyst Tony Wible, who has been telling clients to sell their Netflix stock. Inventory could pile up because consumers “have little interest in older games.”
While seemingly few and far between, there was at least one analyst defending Netflix on Monday, both for its decision to raise prices and to split its business in two.
“As consumers use more and more devices for streaming, all the upsetting events over the past few months will be forgotten,” said NPD entertainment analyst Russ Crupnick.
Crupnick also predicted that other extreme changes for Netflix are on the way, owed to how expensive it is to license TV shows and movies for streaming. He predicts a premium tier for new releases or even a la carte options for certain movies.
“For $8 a month, it’s very difficult for Netflix to obtain the streaming content it wants,” Crupnick said. “Consumers are going to have to pay sooner or later, so why not do it all at Netflix?”
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