Where Netflix Went Wrong: Corporate Communications

The good folks at Netflix recently announced a huge price hike for their customers, as they separate their DVD and streaming businesses into distinct product offerings.  If you look at the comments on the blog post where they made the announcement, you will see that the vast majority of comments fall into two categories:

  • This no longer provides value for me, and I might leave…
  • I hate you Netflix and I’m leaving (or have left) !!!

The number of people in the second category significantly outweighs the number of people in the first.  Netflix made a huge mistake — not because they raised their prices, but because they tried to spin the price increase as a benefit to customers.  It is, in fact,  going to cause an increase for most customers.

The funniest (saddest) part about all of this is that they have a potentially useful story to tell about the price increase.  If you look at their ongoing battle with the movie studios, you will see a similar battle to what played out between Apple and the music studios over the past decade.  In fact, this is just another chapter of Media Companies vs their Customers, which started back in the late 90s.

Netflix is engaged in a war with the movie studios who want to get top dollar for their content, and feel that there are enough competitors that they don’t have to be steamrolled by Netflix in subsequent negotiations.  (Additionally, I’m pretty sure they didn’t anticipate the demand that Netflix was able to generate).  As a result, Netflix is looking at up to 10x increases for licensing the content.

Rather than using this information to subtly engender support for themselves with their customer base, Netflix instead chose to craft their message in such a way that their customers only noticed a huge price increase (up to 60% more), for no added value.   This has been a big part of the massive backlash they have experienced, and it is occurring on their own website, for the most part.

Needless to say, this diminishes their leverage even more…

And it is so easy to see from the comments that most of their customers are blissfully unaware of the complete story behind the costs…    While there are many up and coming competitors, they all have their drawbacks and weaknesses, and many do not have sufficient infrastructure to manage a major influx of new customers or compete with Netflix at a high level.  Not today, anyway.

Also, they may not be able to secure sufficiently inexpensive deals for new content in a way that allows them to keep prices much lower than Netflix.   That’s the good news for Netflix.

The bad news, is that many who leave might decide to forgo any other legitimate distribution avenue and simply torrent everything that they care about.   That would be bad for ALL the players, as the music companies can well attest.

What Netflix needs to do is get a handle on this story.  AND they need to give people some sort of useful discount if they purchase both packages.   Shaving just $2 or $3 dollars off the combined bundle would go a long way to assuage concerns of price gouging that many of their customers have right now.

It’s a really dumb strategy to be fighting your customers and suppliers at the same time.  All this proves is that corporate messaging is very important, customers are not stupid (even if they don’t have all the information they need), and in the social-media-instant-communication-age, it is silly to get people all riled up when you don’t absolutely have to…

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