Tag Archives: Netflix

Are we losing perspective on reputation crises?

I receive several email newsletters on public relations issues and business crises are among the favorite topics. Pitches for blog posts from authors or PR pundits frequently focus on the reputation crisis of the day. Commenting and reporting on reputation crises is getting to be like the news business itself–it’s all about immediacy, and if it isn’t lurid enough, or big enough, or juicy enough, we tend to try to make it that way. I’m writing as a crisis comms pundit myself, so this is a big of navel gazing.

Bank of America’s debit card fee kerfluffle. Netflix and their ill-fated business model change and Qwikster division. RIM and their outage problems–did they apologize quickly and effectively enough. News articles talk about drop in share price because of the Blackberry outage such as the LA Times report that share price of RIM dropped 1.1%. Not sure with the volatility of the market that is such a big deal.

What I’m wondering about is are we making too big a deal out of these crises? No doubt the Internet and social media have created greatly increased crisis risk, its increased the speed with which crises evolve, and with the crowd or mob-effect can explode relatively small issues into huge ones almost instantaneously.

Let’s look at some of the ones in the recent past–Dominos and their dumb employees YouTube stunt. JetBlue and its sitting on the runway problems. Even Toyota with the massive recalls and safety issues. Did the big listeria problem keep you from buying cantaloupes? I’m just raising the question here, but are crises like this just becoming commonplace and so losing their impact? Are we becoming inoculated to reputation damage by over exposure? Is it possible that one of the effects of social media on reputations is to increase reputation resilience by making the many crises that seem to pop up over time less significant? Is Bank of America really harmed by all the anger and consumer threats about their debit card fees?

Clearly, the PR profession and particularly those like yours truly who are in the crisis communication business want to think that all these are really big deals. And if the impact of these random thoughts is to take pressure off crisis preparation, then I am doing a huge disservice to all the companies and organizations who are woefully unprepared. But I am wondering if we need to think about crises a little differently.

I remember talking with someone who worked in the press office of President Bush Senior. He said every day was a crisis. That certainly is the case in high profile offices like the president or mayor’s of major cities. Crises in the sense of high public interest, media activity, lots of conversation, potential risk of making the wrong moves–is commonplace in certain offices. And that may very well be what is happening in the social media world. Almost everyday can be a crisis–some far more significant than others. I suspect if you work for a major brand and you are doing your social media monitoring, you are dealing with a dozen minor crises right now, or ones that could erupt into something more major. Is it a crisis if it is a daily occurrence?

I wrote some time ago that crisis communication may be dead. I guess I’m coming back to that theme from a different angle. I said then that if you have an on-going conversation with your key stakeholders, with those people who really matter for your future, then crisis communication is just intensifying that conversation. I really think this is the new world of crisis communication–but only for those who are engaged in on-going conversation.

That seems to me to be the crucial difference. Crisis communication in the older and now increasingly outdated sense is when you need to rely on traditional media to address the concerns and communicate with the people that matter. The new crisis communication to a large degree can  afford to ignore the traditional media essentially entirely because you are already talking directly and engaging directly those people who matter most. If things go wrong, you listen, you respond, you explain, you clarify, you correct the wrong information and you carry on the conversation.

Netflix apology–good or bad?

Seems there is usually a herd mentality when it comes to crisis communication pundit comments about reputation crises. That’s why it is interesting to me to see such a wide variety of opinion about Netflix’s crisis and the way they are handling it.

The Netflix crisis is a little different than most reputation crises. It is more of a business challenge caused by a decision to dramatically change a very successful business model. They built a large customer base by offering initially DVD distribution through the mail, then added streaming video service. As it evolved, it was all one business, one service, one customer base, one price. Netflix apparently saw this evolution and I believe that they saw that the streaming business was more their future and the DVD distribution would decline. I’m guessing at some of this (someone from Netflix can correct me if I am wrong), but I would guess the cost structure for these two ways of delivering videos was quite different and I also guess that they did research and discovered that some were using DVD only, some (like my wife and I) were using streaming only, and some were using both. So the divided the business into two options, priced each option and allowed those who wanted both to continue. For the “both” option, what everyone was used to getting, there would now be a substantial price increase.

In July they made the announcement. And as I commented on Ragan Daily Headlines and here in this blog, they screwed up how they handled it. Their message carried no explanation and gave no hint that some would not understand and many would object to the large price increase. The social media backlash was instant and brutal. While I thought they really messed up their announcement and that there would be some strong initial reaction, I thought they would be just fine. I was wrong. They lost 600,000 subscribers, share value decreased by $2.6 billion, negative press focused on their goof-ups, and PR newsletters documented their continuing problems.

Then, a couple of days ago, Redd Hastings issued an apology for his “arrogance” in the initial announcement and a detailed explanation of their new strategy, which now included renaming the DVD distribution business Qwikster. I was asked by Ragan Daily Headlines to comment on the apology and explanation and considered it excellent even while I questioned the business strategy, particularly the name Qwikster.

However, the brutal treatment of Netflix in the press, particularly some of the PR press continues, as does the evaluation by other crisis communication experts of their apology. I note in particular Bulldog Reporter, who as I have pointed out here before, seems to enjoy piling on any company that finds itself the target of media outrage. Their coverage of the problems was tame compared to the very strong criticism of the Reed Hastings apology by crisis communication pundit Jim Lukaszewski (Look-a-shev-ski), with whom I typically agree. Jim is a highly respected communication expert, so when I have such strong disagreement with him on an issue, it certainly causes me to question my position. However, in this case I think he is being very unfair and unrealistic given the situation.

I think he makes some of the same mistakes that Bulldog has done in this–considering it a PR crisis when in fact at its heart it is a business crisis caused by a very substantial change in business model. Yes, there is great risk in changing a successful business model, but there is also risk in not changing. They saw the shift in their business and as Mr. Hasting points out in his explanation (which I still consider excellent), they were uncertain whether they could be as successful in the streaming business as DVD distribution. But, it seems they felt (and I tend to agree) that given shifts in the market, they needed to make this change. Where they royally screwed up was in how they communicated that. I agree with Mr. Hastings again is that the root cause of this screwup was probably their arrogance in taking customers for granted, thinking that a careful, detailed, transparent explanation of their business model change and reason for it wasn’t necessary.

Mr. Lukaszewski provides an outstanding guide to a good apology–but when applied against the actual message provided by Hastings, and not the heavily commented-on interpretation of it that Jim provides, I think it matches up pretty well.

But, what do you think? Am I wrong in thinking this is a business crisis caused by a substantial business model change whose impact was greatly heightened by very poor initial communication, and this is an effective apology? Or, is it indeed just a PR/reputation crisis caused by poor communication and now exacerbated by an empty and ineffective apology? Your thoughts would be much appreciated.

Netflix price increase brouhaha: unnecessary outrage amplified

Thanks to Matt Wilson of Ragan Communications for getting me to think about Netflix and the tempest they created with a bungled service change announcement:

Did Netflix just throw their entire franchise away by bungling a price increase announcement? As I write this “Dear Netflix” is one of the top trending topics on Twitter and the comments on Netflix’s own blog post about the price increase makes it clear that their customer base is not happy and may well be a former customer base.

What went wrong? And how could this have been avoided?

First, I think it is important to understand that the lens of social media does not necessarily reflect reality very accurately. While it appears that Netflix is in deep trouble over this, I’m not certain this is the case. At the same time, the social media reaction also colors the response of others who may not be so exercised over this.

As Netflix customers we also received the email notice about the price increase. My wife relayed it to me and we briefly discussed that this seemed excessive and whether or not we would continue. But when I looked at the online comments my very moderate negative reaction became more like outrage. Yes, how could they do this to me, a loyal customer! Not only that, I found out what others were turning to as alternatives.

So not only does social media reaction tend to give a distorted picture of reality, it tends to feed the outrage. All the people who are upset are telling why they’ve wanted to cancel Netflix for a long time—like limited selection, not having the latest and greatest, etc. What may be worse they are informing those watching the discussion as to the alternatives and creating a sense that this is where the herd is heading next.

Summary:

1)     Social media outrage gives false picture of reality. I doubt that the reaction we see on social media right now is at all representative. I doubt that Netflix’s customers overall are reacting as strongly as it seems by looking at the comments. That means in an event like this you have to keep your cool, not over react, and keep an eye on the big picture without allowing the lens of social media which gives a distorted picture to cause a distorted response.

2)     Social media outrage feeds outrage. While the picture may be distorted, the outrage reaction amplifies feelings. My moderately negative reaction is much deepened when I look at how others are reacting. We certainly have seen this in other events including the Gulf Spill when outrage fed outrage. That’s why these reactions or over-reactions are still very dangerous and very important to avoid and deal with.

3)     Social media greases the skids of change. By that I mean it makes it much easier for me as a customer to consider alternatives. Those who are angry are telling me all kinds of reasons for dissatisfaction with Netflix—reasons I never had before. Plus, they are telling me where they are going. Redbox is going to see some big increase in business, just like some hosting companies did after Godaddy’s CEO stepped on himself over the elephant shooting business. Social media tells people why to be unhappy and creates a herd mentality relating to where they are going now.

So, what went wrong and how could this have been avoided?

1) Explain yourself. Their email explaining the change was pitiful. Here’s how its starts: “We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:”

Their blog post does much better but still comes across as incomplete and perhaps less than completely honest. It starts out this way: “First, we are launching new DVD only plans. These plans offer our lowest prices ever for unlimited DVDs – only $7.99 a month for our 1 DVD out at-a-time plan and $11.99 a month for our 2 DVDs out at-a-time plan. By offering our lowest prices ever, we hope to provide great value to our current and future DVDs by mail members. New members can sign up for these plans by going to DVD.netflix.com.”

Once I understood what they were doing, unbundling their service, I realized that my price was actually going down because I will use only the streaming service. But, when we got the email we discussed cancelling because it looked as if they were doubling the price overnight.

2) Involve your customers. It is hard to believe that a company like Netflix, born on the Internet, would do something like this without involving the social media crowd. Something like this should not be sprung on an unsuspecting customer base. Politicians call it raising a trial balloon, but social media makes it very easy to engage customers in big changes like this. They could have said, hey, we’re thinking about doing this, what do you guys think? Here are our problems and challenges, if you were in our shoes, what would you do about it? That would have smoothed the way, given them important information, and created defenders of those people who participated.

3) Offer to grandfather those who want it to stay the same. For many, the change may be good and well accepted. But for those who strongly object, offering to grandfather for even six months would ease the anger. But they probably would have figured that out if they had involved the customers in the first place.
The upshot: Netflix will survive just fine. Competitors like Redbox will see some gains but will only really see long term if they offer significant added value and communicate it aggressively. But this will cost them, in loyalty, in brand value, in loss of customers—and from my perspective, unnecessarily because of failing to either understand or think through carefully the implications in the era of social media amplified outrage.