Netflix's Reed Hastings: "I messed up" in communicating price increases

In a rare example of an authentic CEO apology, Netflix's Reed Hastings published a letter to customers in which he took responsibility for, and apologized for, the recent confusion and controversy over the company's decision to split its pricing plans, with separate charges for DVD and streaming. He did this in conjunction with formally separating the DVD business unit into a separate company, named Qwikster. Here's an excerpt:

I messed up. I owe everyone 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. I’ll try to explain how this happened.

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 these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.

When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, “Actions speak louder than words,” and we should just keep improving our service.

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.

Some smart people are saying that what Netflix is doing, in spite of the negative publicity, is exactly the right thing to do, and the right time to do it. By demonstrating fallibility and humility, Hastings is doing what he can to soften the blow to customers, while not reversing or altering his strategic decision.

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