Netflix Founder Admits, “I Made A Mistake”

Being a public figure in the year 2011 means never having to admit that you were wrong. Ever. You can always blame some type of addiction, rationalize what you did, or if you’re Michelle Bachmann say something inane and then return to being wrong about everything. That’s why it’s refreshing to hear Netflix Co-Founder and CEO Reed Hastings admit to making a mistake. In an email and blog post addressed to subscribers Hastings admitted to making a misstep in separating the Company’s streaming and DVD mailing services. The move, made in August and accompanied by a price increase met widespread outcry from subscribers and Netflix stock got hammered when the Company failed to meet its third quarter earnings guidance, a major no-no for any firm.

In his message, Hastings admits that he failed in effectively communicating why he made the change and elaborated on how the Company would be moving forward. Netflix will essentially be separating its two main operations, with the streaming component staying under the Netflix title and the DVD mailing service being re-branded as Qwikster (does anyone else think this name is stupid?). Qwuikster services will be expanded to include video games.

It remains to be seen how this change will effect the Company’s profits going forward. While I like the idea of expanding the Qwikster service to include video games, I’m a bit skeptical that it will enhance Netflix’s profits especially given the higher cost of video games compared to DVDs. Initial market reaction was positive, however the Company’s stock price has fallen through the day. My admittedly superficial take? Netflix needs to move towards an all-streaming model as quickly as possible. Doing so will require negotiating new deals with movie studios. However, studios are increasingly reluctant to make movies available for streaming early, believing that doing so cuts into DVD sales (which are a dying market anyways). In short, I wouldn’t be buying Netflix stock any time soon.

 

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Posted on September 19, 2011, in Serious Topics and tagged , . Bookmark the permalink. Leave a comment.

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