Netflix CEO: "We Feel Bad About Having Customers Upset With Us."

On the Netlfix Q2 2011 earning Q&A call Netflix CEO Reed Hastings commented on the outcry over the price increase:

"Like any customer-driven organization, we feel bad about having customers upset with us, but we feel great about the amazing new content we're going to be able to license in the fourth quarter and next year, which will further propel our growth and subscriber satisfaction."

Why did they raise the price now, when subscriber growth is near the highest they've ever had, instead of waiting until they are further into the penetration curve:

The reason we felt confident about doing it now is the strength of streaming-only. We got convinced can that we can thrive on streaming-only, the best timing was now.

Why did they decide to push through such a large price increase instead of a smaller, less disruptive one?

We didn't approach it as what percent price increase should one do, if I think we had we probably wouldn't have gone to 60%. So I can understand the question. We really approached it on that we should really separate the businesses and the plans because streaming-only was going to become a global offering and we wanted to really focus on that global streaming offering, and DVD is an incredible US-based plan that's very profitable, it's very large, and we wanted to be very successful, and have a group that was going to focus on it, and the pricing change somewhat was an outcome of that.

Did the call volume about the price increase surprise them? Hastings: 

"Believe it or not, the noise level was actually less than we expected given a 60% price increase for some subscribers. We knew what we were getting into, we tried to be as straightforward as we could, and it has worked out well for us."

You can listen to the call or read the transcript at Seeking Alpha.

Comments

[M. Hale]

What Reed Hastings is trying to say is that he really takes your concerns seriously but Netflix is going to do whatever it wants because it has become the typical, soulless US corporation. Netflix had a unique culture and relationship built between itself and its customers. Then they decided to start expanding, buying up a bunch of streaming content that has questionable value to me and others based on comments on Hacking Netflix. All of the expansion and content costs money. Instead of finding a way to pass on that cost to the customers and retain the relationship (smaller price increase perhaps), Netflix just blasted through a huge price increase assuming everyone wouldn't get mad because we love Netflix so much. There is only so much you can do to the customer before people get pissed at you. Try keeping that relationship positive now Netflix. Stay classy now....

[Jessica County]

If they don't get better streaming content before the price increase is effective, people are going to quit earlier than I thought they would. I know I will cancel mine.

[Jessica County]

I meant to say before the price increase is in effect in September, NOT effective (effective is the last thing the price increase will be, counter productive, yes). Sorry.

[ElAndyG]

Lol @mhale... Seriously? Soulless company? Streaming has been free for a couple years now when u order DVDs... Streaming has become so big they have to make it a separate product... That's the evolution of a product... Does it suck? Yea I wish I can get it free too with a one out at a time plan, but in order to get better content where are they supposed to get it? Commercials?

But since you're the monetary expert lets hear how you think Netflix should run the company...

[Nick]

I would agree that Netflix is turning into a soulless company. I, for one, am not directly affected by the price increase because I've had a streaming only plan for some months now. But, there are many other decisions Netflix has made that are based more on their relationship with Wall Street and less on their relationship with customers. The price increase is only one example.

There are two types of innovation. The kind that's good for customers and the kind that makes customers cringe. Netflix innovation is increasingly the latter. They used to be really really good, now they're just so so in my book.

[Jawbone]

My suspicion is that after all the grumbling dies down, people will continue to stick with Netflix and be pleased, mostly because it's still a bargain. We can watch a dozen movies in a month for less than what it costs to go to the movies once. And for about half what it cost to rent the movies at brick-and-mortar stores (back when they existed), minus the hassle of driving back and forth. And the "60 percent" increase is just a worst case scenario. Our bill went up by about 15 percent, and when we switched from 3-at-a-time to 2-at-a-time, it ended up actually down a penny (with increased use of streaming, we found that disks had been piling up on the 3-at-a-time plan, but Netflix was so cheap we hadn't bothered to downgrade).

[Robert Emmerich]

Netflix decided to "unbundle" it's streaming and DVD service, and then charge FULL PRICE for both. How [email protected] stupid is that? How did that get out of a board room or marketing? Freaking idiots. All they had to say was (in best Steve Jobs voice) - "some of our customers only want streaming and some only want DVD's, so we're making it easy for either of them, pay for only what you want. It's only $7.99 for unlimited streaming or $7.99 for unlimited DVDs. For those who want both we're offering it at a discount, it's only $14.99 for unlimited DVDs and streaming." Yes, people would still be upset about the 50% price increase, but at least a few would spread the good word of choice and the bundling discount. Their presentation of this blew and they lost all good will. [email protected]

[Jason]

While posting more is disappointing I've concluded that based on the new pricing the 2 and 3 at a time are still a good value. I'm switching up to the 2 at a time when the prices go up from my current one at a time.

[James Heartney]

I think the mechanics of the rollout of the new pricing scheme were poorly done, and this contributed to a lot of the backlash. Moving to their new pricing structure by degrees, for example, would have softened the blow. Making the announcement direct to customers rather than issuing a press release and letting media outlets put their own spin on it would have been a much better way to break the news; the way it was actually done amounts to PR malpractice.

This HuffPo slideshow

http://tinyurl.com/3u8er5e

gives a good breakdown on how badly Netflix bungled the announcement. It would make a good business case study in how not to handle a price change.

[pwrof3]

I believe that, after the hot air stops being blown around, subscribers will stay.
People love Netflix for the convenience, and I believe that convenience will be the reason people keep on paying the new fees.

[SPLG]

"Like any customer-driven organization, we feel bad about having customers upset with us"

Translation: If you don't like it, feel free to go somewhere else.

Netflix hasn't given a shit about customer reactions in a long long time. About as long as they realized that they could do whatever they wanted and customers didn't have many other options in the marketplace. When there is serious competition to Netflix's role in streaming, suddenly you'll see them start listening again.

[Edward R Murrow]

So when you have no competitors, you don't really have to pay attention to customer feedback.

As competition heats up for streaming, it's going to be difficult for Netflix to start being customer-driven.

If you know about marketing, a box of tissues is a box of tissues - it's always more pleasant to buy the box of tissues from someone who really wants your business and lets you know how appreciative they are.

[Homer0817]

I don not see what all the hype is about with the price increase, after all even with a 60% increase in some cases I still feel it's a good bargin way cheaper then renting dvd's from a BB store or going to the movies and that is why I am staying with netflix.

[Alkalitta]

nexflix doesn't have to feel bad .
they can't help it they got greedy...

[Susan Benzer]

They've quit caring. Yes, it's all about the stockholders. They have become a soulless greedy corporation.

Plus I've looked at my account and I can't figure out what I'll be paying come September. I will most likely be dropping streaming though. Hulu Plus has better service and more closed captioning.