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Media Watch: Looking Back on Netflix's Rocky Year

Photo of Beth Hanna By Beth Hanna | Thompson on Hollywood July 12, 2012 at 12:55PM

It was one year ago today that Netflix made a serious misstep: The company hiked its popular $10 DVD and streaming VOD subscription up to $15.98.
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Netflix's Reed Hastings.
Netflix's Reed Hastings.

It was one year ago today that Netflix made a serious misstep: The company hiked its popular $10 DVD and streaming VOD subscription up to $15.98. Chief exec Reed Hastings thought that the 60% price jump would annoy some subscribers, but most would understand that Netflix was still a great bargain. Instead, Netflix customers were livid.

Of course the price hike was only the first half of the issue -- Netflix also attempted to spin off its DVD operations to Qwikster, which went over like a ton of bricks. The company lost 800,000 subscribers as a result, and its stock plummeted 77%. Qwikster was abandoned three weeks after it was announced. (More on Netflix slide toward TV offerings at WSJ.)

An exhaustive report from CNET outlines the blow-by-blow of the Netflix debacle and recovery:

  • Hastings has an unwavering vision that SVOD is the future, and put an overly rapid plan for a DVD branch-off company (which would eventually briefly become Qwikster) into action in March 2011. Netflix's success up until that time (a 200% share price uptick in 2010) had Hastings confident the drastic plan would work.
  • Immediately after the fallout in July 2011, Netflix did a poor job of communicating with its enraged customers, and listening to their complaints. Mike Kaltschnee of Hackingnetflix.com (a Netflix news blog) says this is symptomatic of the company.
  • Netflix lost its contract with Starz, which made a serious dent in the SVOD path the company had envisioned. Starz titles disappeared from the Netflix streaming library in February 2012.
  • Hastings then unveiled Qwikster, which "qwikly" died. Netflix was deeply confusing its customers with its intensely erratic behavior.
  • In the fourth quarter of 2011, Netflix seemingly recovered by bouncing back 47%. However, in the first quarter of 2012, the company stomached a $5 million loss on revenue of $870 million.
  • Despite these ups and downs, Netflix's prospects are looking fairly bright: Even at $16 per month for DVD and SVOD, the company is very aggressively priced in comparison to competitors Apple, Google, Amazon, etc. They are investing in original programming production and distribution, and recently announced a record of 1 billion hours of viewership in June.

This article is related to: Netflix, Reed Hastings, Media


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