An honest apology
How many times in a lifetime do you hear the CEO of a major corporation use phrases like "I messed up" and "I owe everyone an explanation?" But there on his blog, Netflix CEO Reed Hastings came clean.
The company's disastrous decision to increase monthly rates by 60 percent to $16 from $10 resulted in Netflix cutting its subscriber projections by nearly 1 million members, or 4 percent of its total, and losing 56 percent of its stock price from its high. In the blog post, Hastings explains the miscues. "I slid into arrogance based upon past success."
Hastings' honesty is startling, considering that leaders today rarely take the blame and instead choose to pin problems on others. Particularly telling of this entire situation is where Hastings made his confession. Online. On the company's own blog. Direct to customers. Not mediated, deliberated, or reinterpreted by others.
In doing so, Hastings presents a compelling case by sharing his angst and explaining the difficulty any organization faces in embracing change. It's tough, he acknowledges, to accept a changing world, and difficult to know how fast is too fast to move a company forward.
So Hastings is opening up the throttle, moving quickly, and trying to explain it all. In the blog post, he announces that Netflix will split the company into two separate divisions -- one to tend to the outmoded DVD business and the other to concentrate on streaming.
In doing so, he's staking the company's future on new technology, something he admits that others companies, such as Borders and AOL, failed to do and paid a bitter price.
To avert that outcome, Netflix will drop its branding from the DVD side of the business, which going forward will be known as Qwikster. The Netflix name stays with the streaming side. Inconveniently, customers will have to open separate credit card accounts on different websites to buy both services, and there's no give on the pricing -- it will still be $16 a month for both.
Has Hastings now gone too far? It all depends on the advances Netflix makes in its streaming business. Currently, Netflix' bland streaming selection (sorry fellow blogger, Joel Capperella, I still think it's limited) is more akin to cable TV programming. Copyright and pricing issues have hamstrung it from offering anything in the way of recent releases or on-demand TV watching.
If Netflix can overcome these limitations; ramp up its original programming; and start offering a broader, more popular streaming catalog, its value to customers spikes, its price increases are justified, and Netflix can jump ship from its sinking DVD business just in time to board a swifter skiff.
But none of this will work if Netflix backslides and reverts to previous communications habits. There's much to learn about Netflix' recent stumble for any professional communicator.
1. When change is rapid, communications need to be intensive. Hastings admits this in his blog post when he writes, "When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong." Communications predisposes the markets and employees to change, and even if it fails to build support, it provides the seeds for audiences to rationalize and accept the need for change.
2. In a world of boundless alternatives, communicating with customers is crucial to maintaining their trust. By some estimates, Netflix consumes about 20 percent of all U.S. Internet traffic during peak hours. Arrogance allowed Netflix to confuse such mind-boggling demand with loyalty. It found out the truth once prices were raised and customers quickly turned to alternatives -- including good old-fashioned free TV.
3. Pre-seeding the message is a vital step in conditioning your market to change. Consumers repel to shock even more than to higher prices. By announcing the news so coldly without warning or suggestion, customers simply moved on -- reacting without warning, returning the favor.
4. Connecting the dots is imperative to supporting your story. In the Netflix case, there was no rationale or backstory to explain the price increase. Consumers were left on their own to draw their own conclusions -- and many concluded they had been abused. If Hastings had taken time upfront to explain the rationale, it would have made it easier to understand the value of on-demand entertainment. By failing to paint the picture and connect the dots to show consumers the future of streaming TV, he leaves them to their own design, and many concluded the price increase was unwarranted, unfair.
5. Repetition must be repeated, and said again and again. Now that Netflix has taken an important first step and apologized, it must continue to explain itself and the rationale for change. A 24/7, ADD, twitterized citizenry pays little attention, forgets, and moves on quickly. Netflix must stay before them, repeatedly delivering the message so customers can eventually understand the reason they are being called upon to change.