Tag Archives: Netflix reputation crisis

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.