
From: Reed Hastings, Co-Founder and CEO of Netflix
To: FastLaugh.com
Subject: An Explanation and Some Reflections
Date: Mon, 19 Sep 2011
Dear Netflix Subscriber,
I fucked up. Big time.
Now, with Netflix’s stock tanking and subscribers fleeing, I’m forced to do damage control since my board of directors and our PR folks told me I owed you a half-assed explanation.
In hindsight, I slid into arrogance based upon past success. But now I see that given the antagonizing changes we have been making recently, I should have personally given at least some justification to our members of why we are separating DVD and streaming, and charging about 60% more for both.
It is clear from the wave of cancellations, subscription downgrades, mockery and hate mail over the past two months that most of our members felt we had our head up our ass in the way we announced the separation of DVD and streaming and the price changes.
That was certainly not our intent, but we really couldn’t help ourselves after we lost touch and grossly underestimated the awareness and tolerance of our customers. Plus, we were very distracted with trying to jam a five-story, view-blocking construction project up the ass of the Los Gatos city council by threatening to take our tax revenue out of their fine community.
So… now I offer you my grudging apology and wish to hell that you would just go back to worrying and tweeting about Steve Jobs’ health.
I’ll try to explain how this mess happened and how we plan to mess up even more going forward.
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) because they are afraid to hurt their initial business. Eventually those companies realized their error of not focusing enough on the new thing, and began their desperate death spiral.
Recognizing this, we decided to take the opposite approach and die from arrogance and stupidity by intentionally fucking up our initial business and alienating our loyal customers just as viable competition was emerging.
So… we moved quickly into streaming and sucked up most of the bandwidth used in the U.S. every night.
Because we don’t respect you, we didn’t bother explaining why we are splitting the services and thereby jacking up your subscription to the point where you had begun noticing and caring what you were spending on our service every month.
We still don’t respect you, but here is what we are doing now and why.
We determined that streaming and DVD by mail are now completely imcompatable businesses with very different cost structures that need to be marketed differently.
It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: DVD by mail won’t last forever and maybe not even for another year, since the U.S. Postal Service is going bankrupt, axeing distribution centers, and will soon be cutting service to one day a week.
But…we want it to milk this for as long as possible, so in a few weeks we will rename our DVD by mail service “Qwikster”.
We chose this idiotic and highly mockable name, Qwikster, because the branding agency that charged us a few million bucks to come up with it and test it out on a focus group thought that it vaguely refers to quick delivery, plus it has the always fun-to-say suffix ‘ster’ at the end of its name!
We will keep the name “Netflix” for streaming since the focus group thought that the names Qwikflix and Netster sounded very contrived, unlike Qwikster that clearly sounds like it is a DVD by mail service to anyone with half a brain.
Qwikster will be the same website and DVD service that everyone is used to… except that it won’t be… since a negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will have zero integration so DVD members will now have to go to qwikster.com to access their DVD queues and choose movies.
Members have been asking us for video games for many years, so now that DVD by mail has its own team we are finally getting it done just in time for video game distribution moving away from phyical distribution. Expect more forward-thinking improvements like this from the Qwikster brain-trust.
For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red that leaves ink stains on your finger tips, your clothing, the floormats and seats of your car, your kitchen countertop, and just about any moist surface… but now it will have a Qwikster logo. I know that logo will grow on me over time, because my career as Netflix CEO depends upon it.
I want to apologize again to those members, both current and former, who felt we treated them thoughtlessly. You are right. We did.
If you are a former customer, please come back and give us the opportunity to do it to you again the next time we misread customer sentiment and take you for granted.
Grudgingly yours,
Reed Hastings, Co-Founder and CEO, Netflix
P.S. By the way, if you are a stockholder, please don’t hold it against me that our share price has plunged to 15% lower than it was at Christmas.
P.P.S. Also, you may recall that we spent $160 million of stockholders’ cash buying in shares at an average price of $222. So far investors have lost $47 million on that deal, but don’t worry about me! In January, I announced that I was selling chunks of my stock, under the automated “10b5” rules, so I’ve cashed out about $41 million since then.
P.P.P.S. If you are reading this, Jason C., yeah we fucked up and didn’t even bother to check to see that the @qwikster Twitter account had already been taken by you. Could you maybe please tone down the vulgarities… and also the mentions of your recreational drug use? In exchange for a free one-year subscription to Qwikster, would you maybe consider changing your Twitter avatar to something besides Sesame Street’s Elmo smoking a joint?