Netflix CEO Apologizes, Introduces Qwikster in Customer Email

If you’re a Netflix customer, your inbox this morning contained an email from Reed Hastings, the CEO of Netflix, that opens with, “I messed up. I owe you an explanation.”

With that, Hastings discusses the need for Netflix to move into streaming, his business fears, and the differing cost structures for a DVD business and a movie streaming business that made the cost increases that angered customers necessary. He also introduces “Qwikster,” the new DVD service that will have its own website and logo when it launches in a few weeks, splitting the company into two businesses.

Netflix has had a hard go of it since it sprung its price increases on consumers. Subscribers have fled and the stock has taken a beating.

But, this is exactly what PR experts advise a company in trouble to do; come out and speak directly to consumers, let them know their feedback has been heard, and respond. However, in PR as in life, there are no guarantees. People are in the comments on the company’s blog post saying this isn’t a real apology (he doesn’t apologize for jacking up prices) and continue to voice their complaints. Not to mention the criticisms of the new name for the DVD business. Qwikster?!

And as if that weren’t enough, it looks like the Qwikster Twitter handle has been taken by someone who never won any spelling bees.

CNET gives Hastings the benefit of the doubt, saying the apology sounds genuine, but says the CEO buried the lede: “By separating the services and charging for both ($7.99) we can license more streaming content. We are hungry for better streaming service.”

Rather than the apology for making people mad, more detail about why the prices had to go up may have been a better message, CNET continues.

Netflix had little wiggle room on this issue from the start, so this has turned into a costly communications misstep. People are feeling the pinch of the recession, they’ve cut back on their entertainment budgets, and paying more to stay home and watch a movie wasn’t going to sit well. Information about the needs and direction of the business needed to be laid out well before the increases were even introduced. That way, the company could’ve responded to feedback before rather than after the fact.

We can’t go back in time, so the correspondence is a good first step. Perhaps the company will be able to respond to feedback about Qwikster in time for the launch and regain some of the lost love from subscribers. If he has time, there are already almost 10,000 comments on the blog post for Hastings to sift through.

Below is the full email and a short video about Qwikster that was posted on YouTube.

Dear Tonya,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. 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. DVD is a great option for those who want the huge and comprehensive selection of movies.

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 need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

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

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the and websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.