Many Netflix subscribers, myself included, were confused by the company’s decision-making last fall. First, the prices increased about 60 percent. Then, you may recall receiving a bizarre e-mail from CEO, Reed Hastings; I had frankly never heard of him until I read his two-page apology e-mail, saying “I messed up” and “Quickster” which left me even MORE confused about my DVD and instant-queue services. Subscribers were dropping like flies and shareholders were bracing themselves for some rough times ahead. However, according to a recent New York Times article, Netflix is experiencing a turnaround!
After a loss of about 800,000 subscribers in the third quarter, it is clear that there were some managing techniques that were not carried out to their optimal performance. It may be that Netflix assumed its market advantage meant that customer’s loyalty would withstand a price influx.
Unfortunately, the customer’s subjective view of Netflix’s quality did not match higher prices. After many problems in areas such as performance (Instant stream videos would buffer FOREVER), reliability (the biggest blockbuster has been taking weeks to get to the front door!) along with reputation (Reed Hastings’ apology letter [http://blog.netflix.com/2011/09/explanation-and-some-reflections.html] left many subscribers feeling that the CEO had just written them a high school breakup letter, not something caliber of well-managing CEO) all led to a negative perception of Netflix’s overall quality.
However, after a rebounding fourth quarter, it may seem that the forecast is changing for Netflix! Stock has increased about 30 percent in the last few weeks. This may be because Netflix had spent the past quarter reexamining Netflix’s product lifecycle. According to the New York Times, Netflix is no longer putting as much weight in its DVD options; with changes to technology (smart phones and tablets now seem to be at everyone’s fingertips, allowing easy media-viewing without a DVD player) the product lifecycle for DVDs is at the cusp of its decline stage. Instead, instant stream has taken the main stage. And Netflix’s instant-stream product opportunities may be looking even brighter due to recent legal changes to internet viewing rights (PIPA and SOPA) which may tighten the restrictions on media-access.
Through Netflix’s focus on instant streaming, be it a better selection of films or higher quality of picture, the company will have an easy time relating what the customer wants (movies instantly to their home) and how Netflix can provide a service to fulfill this want, and therefore, creating an optimistic outlook for the company after a somewhat turbulent autumn.
Do you think Netflix is on target with matching its services with its customers’ needs? What do you think about the product lifecycle of DVDs in relation to Netflix’s business model? What type of forecasting outlook do you think Netflix has?
http://www.nytimes.com/2012/01/26/business/media/a-turnaround-at-netflix-as-its-mail-sector-shrinks.html?_r=1&ref=business
I have to admit I was a little upset when I realized this blog post wasn’t about Ty Pennington, but it was an awesome topic & post none the less! I remember when the front page of Wall Street Journal read: “Netflix CEO Unbowed.” (Tuesday September, 20th) They printed three articles all pertaining to Netflix’s split and Hastings’ management, some analysts were critical and others had applauded Hastings. I happen to believe splitting the two was a smart decision despite their slight drop in subscribers, and massive drop in stock price.
In relation to the product life cycle, Netflix and their streaming business remain in the growth stage; although its DVD-by-mail service is undoubtedly in its maturity. There is high fulfillment/operation expenses associated with Netflix’s DVD-by-mail business, and allowing Qwikster to be its own separate subsidiary was supposed to help reduce these costs.
You can see how their operations could be very expensive in this video: http://www.youtube.com/watch?v=o8HROe4t8S4
I cant stop and think about this video every time that I think about what netflix did ( http://www.youtube.com/watch?v=BeP6CpUnfc0 ). I gave a detailed report about what happened with netflix in my MGT 300 class, and am a current subscriber to netflix. I think that the main reason that their stock took such a beating is because netflix was yes moving in the right direction and wanted to take more time and resources with streaming because yes they are the leaders in that area currently. how they went about doing it has to be the worst idea in the world. first of all they didn’t take into consideration what it meant to receive that dvd in the mail even once a month. it really connected people with netflix, and when they would see someone else getting their dvd it would remind them to send theirs in so that they could too have that wonderful moment of receiving that dvd in their mail box. connecting people with a product like netflix was so simple it was able to block buster out of business in a couple of years. I personally think that they should have waited for the larger movie contracts to come in before they got rid of the dvd’s, but then again who am I. I am the customer that swore up and down that I was going to ditch netflix and never did. then again the company did lose 28% of their value overnight, I think they can have my 8 bucks I’ll use redbox.
I totally agree with you with the point that last year Netflix really drove me insane and confused me! I think that at that point Netflix was definitely declining, however, they definitely are trying to remedy their mistakes to bring themselves back to maturity. I think the biggest aspect, which you mentioned, that they need to play to is the usefulness of tablets and phones, especially since buffering times and speed is no longer becoming an option with the changes in technology. However, I never understood how people enjoyed watching films or television on such a small screen, but hey… that’s just me.
Netflix’s problems were a clear example of poor planning and/or market reserach. Netfllix is a great product but the impulsive move to introduce “Quickster” was obvioulsy poorly thought out. The good thing is that Netflix recognized and acknowledged thier mistake and made the necessary changes to get back on track. DVD’s by mail have essentially run their course so Netflix’s move to focus more on streaming videos was a smart move, especially since Redbox has staked its claim in the movie rental business. Netflix’x recent rebound in the market is a good sign that they are headed in the right direction.
I agree that Netflix did mess up, but thier rebound was a great turnaround. I believe that Netflix is a good company and as the author says, Netflix has greatly improved in quality, therefore I do believe that they are now matching their customers needs. The 60% increase was at first very greedy because they became overly confident and greedy trying to make more money and did not forsee how this would affect thier customers. Now they are back to understanding that customer satisfaction is extreamly vital to thier company.
Hello from the future. It is weird to even think about renting dvd’s anymore. After the huge drop in the stock price that the original poster commented on, the stock has risen to almost double the price of the max before the drop. Netflix’s decision to focus on online streaming was without a doubt the best decision they could of made. Over two years later and there are now TV’s that have Netflix built in, high speed streaming from smart phones and tablets, and more people falling asleep with Netflix open on their laptop in their bed than ever before.
Netflix in the recent years had very odd changes. However, their new initiative to let go of the DVD service sounds like a great decision because it would be beneficial decision for the management to focusing on instant streaming because that is where our future is headed. Their is innovation in all technology products that allow online video streaming and that can help Netflix boost sales. Netflix has some of the most interesting ways how they create algorithms for their personalized recommendations, which is a major way of sales for them. Overall, Netflix should focus on making better their online streaming options rather than focus on DVD sales and pricing.
Thankfully, Netflix asks us if we are “still there” so we don’t stream an entire season of “The League” overnight and forget where we left off. Anyway, It was interesting to read about the CEO’s email, as I have never heard of a company going that route before in an attempt to clean up a mess. Lucky for them they have a product that is desirable enough to overcome their price increase, as it was not the email that lead to their fourth quarter comeback and beyond. It’s hard to imagine a company loosing that much business and recovering so quickly. As Jon Claxton stated above, they have made great product improvements (their application on the xbox 360 being my favorite) that have more than made up for their mishaps.