Netflix’s Lost Year

Hard to believe it’s already been a year since Netflix introduced the world to Qwikster.Even more amazing that they’ve been able to recover without it turning into a major disaster. Regardless, it’s been a tough road in the last year for Netflix.

Jonathan Friedland, the new vice president of global corporate communications who had joined Netflix just a few months earlier, asked whether customers on tight incomes might object to the price hike, according to people at Hastings’ meeting. Hastings argued that Netflix was a great bargain. He said he knew that some customers would complain but that the number would be small and the anger would quickly fade.

Hastings was wrong. The price hike and the later, aborted attempt to spin off the company’s DVD operations enraged Netflix customers. The company lost 800,000 subscribers, its stock price dropped 77 percent in four months, and management’s reputation was battered. Hastings went from Fortune magazine’s Businessperson of the Year to the target of Saturday Night Live satire.

To Hastings’ credit, what he wanted to do made sense. The DVD’s best days are behind it. Video streamed via the Internet is slowly replacing the physical disc, and betting a business on a dying product is never a great idea. So Hastings wanted to get ahead of the curve and focus on streaming, to disrupt his own business before someone else did it for him. It was aggressive, far-sighted, and very much in character.

Great read by Greg Sandoval.

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