Bye Bye Netflix
In July, Netflix changed their service dramatically. Lots of people were unhappy, both with the change, and with how it was communicated.

Three months later, Netflix co-founder and CEO Reed Hastings posted an apology on the company’s blog. He also sent a condensed version of that apology to every Netflix customer (well, I got one–I assume everyone else did, too). In it, he says:

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. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why:

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.

Nowhere in this passage, or elsewhere in the apology, does he mention something crucial: the way they’ve been handling streaming has been wrong, and the reorganization is designed to let them keep that part of the business going. Bill Gurley does a great job of explaining how the laws regarding distribution rights for DVDs and streaming video are different.

And I think it’s worth noting that it took three months for them to figure this out. Three months and the loss of what I hear is a million customers–not to mention dwindling stock prices. All that, and an apology that doesn’t really explain the cause of the change (or indicate that they now realize that their method provided very little notice to existing customers).

The response I’ve seen has been overwhelmingly negative, which is not what you usually hope for with an apology.

Photo by ozcast, via Flickr.