When bad news is bigger than good news: Netflix

By William Seidman In Netflix’s initial announcement of its change in services and pricing, CEO Reed Hastings discussed the reasons for separating the business (wanting to serve the streaming market better), announced an overall price increase, and required people to choose between the services —  including a combined service. Subscribers never want a price increase and this was no different. And the bad news of the price increase dominated the good news, which was the legitimate and powerful value of providing better service to streaming customers.  The forced choice led people to evaluate the comparatively weak streaming business from a negative perspective. Netfix lost the potential for customer focus on the greater good while jamming through a price increase. In response to a firestorm of criticism, Hastings wrote a letter, which started off really well with what appeared to be a heartfelt apology for screwing up. Instead, though, he apologized for the fact that Netflix hadn’t communicated well about the change. He then said that Netflix was going to pursue the separation of the business and keep the price increase. It’s always good to take responsibility for not getting your point across, but the letter missed the larger issue of trying to increase the price of a mediocre service and forcing people into a detrimental choice. Again, the price issue obscured the morally powerful issue of improved service. After still more negative feedback, and a sharp decline in their stock price, Netflix announced that it was abandoning the effort to separate the services, but maintaining the price increase. They now managed to completely lose the underlying purpose and, instead,  convince their entire customer base that this was all about driving an unpopular price increase. They could hardly have done a worse job.  ]]>

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