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As we've seen time and time again, even the highest-flying companies can be thrust into crisis and controversy in an instant for a variety of reasons.

For BP, it was a massive oil spill. For AirBnB, it was an ugly incident involving theft and vandalism.

And for Netflix, which is in the midst of a crisis today, the cause of its problems was a decision to change its business model.

That change, of course, forces consumers who had previously received DVDs by mail along with digital streaming to choose one, or pay significantly more for both.

Not surprisingly, this structural change (and effective price increase) sparked criticism from customers, many of whom vented their disappointment (and outrage) online. Many unhappy customers went so far as to state that they'd be canceling their subscriptions if Netflix didn't reconsider its plans.

Last week we learned that some of them are apparently following through on their threats, as Netflix announced that it expects to see a drop in subscribers in the third quarter. Wall Street didn't react favorably, and Netflix stock sold off sharply. All told, it plunged nearly 40% in a matter of days.

That led Netflix CEO Reed Hastings to take to the Netflix Blog on Sunday and publicly apologize for his company's handling of its changes.

In many cases, an apology is a good step a company can take early on to make amends for its mistakes and start the healing process. But unfortunately, Hastings' blog post has only deepened the crisis he faces.

Apologies: the devil is in the details

Not all apologies are created equal, and not all deliver the desired outcome. That may prove to be the case with Hastings' apology, which starts off on the right track but ends poorly.

In short, Hastings made one fatal mistake in his apology: he assumed that Netflix customers were primarily upset because Netflix hadn't explained its changes well enough to them.

He wrote:

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both.

He goes on to explain in detail why Netflix felt the need to separate Netflix's DVD and streaming offerings into two distinct subscriptions, and to charge 'full price' for both.

The problem, however, is that Netflix customers don't need a bunch of MBA and marketing speak to understand why Netflix did what it did. Many did understand the rationale, but even for those that don't, the fact remains: customers simply didn't like change.

In trying to explain to customers why the change made sense for Netflix, he failed to explain why it made sense for its customers.

Don't apologize for one big mistake, and then make another

Providing a company-centric (as opposed to customer-centric) apology was bad enough, but Hastings made the situation even worse by announcing an even more drastic change: the complete separation of DVDs by mail as a new service, Qwikster.

Not only does this change not address the customer complaints, it created new ones. For instance, because Netflix, which is now streaming-only, and Qwikster are separate services, customers who previously had one account and one bill will now maintain two different accounts and see two separate charges if they choose to subscribe to both services.

In other words, Hastings used his apology to let Netflix customers know that he'd be making their lives even more difficult.

Apologies work best when you listen

In the final analysis, Hastings' apology has been poorly-received for one reason: he believes that his problem is a result of his failure to talk more to Netflix customers when, in fact, his problem is a result of his failure to listen to them.

Now that the original Netflix is Qwikster and the new Netflix is Netflix, it's arguably too late for Hastings to issue the type of apology that works: one in which customer concerns are addressed substantively.

There's good news

So is Netflix, for lack of a better word, screwed? Not necessarily.

The good news for the company is that you don't always need to apologize (or apologize well) to be forgiven. If Netflix can convince customers (and former customers) that Netflix and Qwikster are worth what Netflix is charging for them, it can still earn and regain their trust and patronage.

The bad news, of course, is that that Netflix won't be able to mend its relationship with customers nearly as quickly as it hurt them.

Patricio Robles

Published 21 September, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2419 more posts from this author

Comments (5)



I quit Netflix 2 days after they announced the changes. I did the same with Sirius Satelite Radio when they announced a major increase. A company should improve their service and reduce the cost to the customer, not the other way around. It's too bad. I liked the srvice but I wans't really a movie junky so they were getting my money for little effort on their part. I'm sure there were many customers like myself, who left without even caring what the explanation was. They failed to realize that we were their best customers--paying a fee and barely using the service. Stupid is as stupid does...

about 5 years ago



I am on the verge of cancelling as I already downgraded my subscription. I currently rent games through another site called gamefly.com as to help support a smaller company trying to get into business and make a living. Two reasons I will leave Netflix are, the huge spike in subscriptions, which it is cheaper for my wife and I to go to a redbox at this point as we do not get movies that often. Secondly, they are trying to dive into the gaming industry to rent out games as well. This is a business move as I understand, but it is also greedy and hurtful to smaller companies like gamefly. This shows there is far more greed than I can or want to deal with in one particular company. These are specific reasons why I do not shop at companies like wal-mart or any huge chain store. They care nothing about other people trying to make a living and only about making MORE money,as if the CEO of Netflix is not making enough himself while paying his employees so little.

about 5 years ago


Judy Grant

I agree with your analysis and made similar points in my post on the subject titled: Lost Opportunity: Netflix’s Reed Hastings blows the apology.

However, I believe Mr. Hastings has done lasting damage to the company brand and subscriber loyalty. He's added insult to injury and will find it hard to recover. Do-able but hard.

Of course, it's best to "do it right the first time". In the second part of the post, I address how executives can avoid making the same mistakes Reed Hastings made. I'd be interested in your comments.

about 5 years ago



I never liked Netflix. Even before I started working for a competitor, I was outraged at the price increases and poor customer service. I have the new Blockbuster Movie Pass through DISH now, and love my access to over 100,000 Live Streaming titles, as well as the thousands of movies-by-mail. I also get 20 additional channels, and all with no hidden fees or price increases. If you don't like Netflix, and CERTAINLY don't wanna have to deal with TWO Netflixes now, check out what DISH has.

about 5 years ago



I filed them with the FTC today though I don't expect much help, but at least it'll be in the database.

almost 5 years ago

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