Netflixocrites

I can’t even begin to count the number of tweets I’ve seen in the past week or so harping on Netflix’s stock price drop on its announcements of customer attrition and reorganizaton.

Is the firm’s actions the right move or the wrong move?

I don’t know. But I’ll tell you what ticks me off: The number of people who blab on and on about how organizations need to innovate and reinvent themselves and make difficult decisions, and about how bigger isn’t better yada yada yada — and then turn around and blast Netflix for its recent decisions.

Isn’t Netflix doing exactly what many of these people have been advocating ever since they appointed themselves business strategy experts?

These people are nothing but Netflixocrites.

If you have canceled your Netflix subscription, I’ve good news for you: Your decision isn’t a proof point that Netflix made a bad decision.

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14 thoughts on “Netflixocrites

  1. Agreed. It’s pretty simple. Do I still think the service is worth what I pay? Yes and I’ll continue using it until I don’t think it is. Moving along…

  2. So how many shares of Netflix are you buying?

    There’s a difference between innovation/reinvention and dousing yourself with gasoline and lighting a match. It’s perfectly valid for any strategist to call for innovation, then criticize its subsequent execution. I also wouldn’t call poor pricing strategy (not the increase, but the original amount) “innovation”; neither is splitting off services. Otherwise, HP’s recent record would make it the most innovative company in the world.

    Finally, the results of Netflix’s “strategy” (stock price plunge, user defection, drastically higher demands from content providers) are not speculative; they’re real and measurable.

  3. I, for one, am a huge fan of what they’re doing. Couldn’t be happier with the service and coroporate communication. I’ll gladly pay a few dollars more for better content along with the already incredible experience. Netflix just gets it.

  4. They have moved on. Today they are experts on how to run HP.
    It is not just the twitterati and bloggers, even the Gurus who write for HBR have no clues as well. All have nothing more than simplistic solutions for netflix.

    -rags

  5. Freddy
    So what materially changed in their strategy or execution in the months leading up to the last two events that support the 6 fold increase in stock? Are you implying nothing in the stock price change, its run up and the 50% drop is not speculative?
    You cannot attribute direct causation to just strategy, execution or what some call as innovation premium.
    We don’t have all the data Netflix is looking at. This isn’t to say they know better but there is lots of uncertainties in all these.
    -rags

  6. Freddy:When I saw Rags’ first comment on this post, my immediate thought was “sounds like something Freddy Nager would’ve said.” To be sure I’m making myself clear here, though, I’m less criticizing Netflix and more critical of folks who I think are being hypocritical. Netflix may very well be making some stupid decisions (although I don’t think so), but the point of this blog is the mindless critique of the firm by many people who at other times run around calling for firms to “reinvent” and “transform” themselves.

  7. Netflix, at its inception, was never destined to be anything more than a “bridge technology.” The DVD delivery business — whether in Blockbuster stores or through the mail — is a temporary model only. It isn’t sustainable, and it never was. DVDs — just like CDs, VHS tapes, vinyl records and cassette tapes before them — are doomed. In fact, with everything heading towards iPhones and “the cloud,” we’ve probably seen the last of storage media, especially media tied to a single function (e.g., music, computer data, movies, etc.).

    Netflix will be lucky to still be around in another 10 years. That they will need to scramble, make huge changes and even throw some darts… well, that shouldn’t come as a surprise to anyone.

  8. Rags, what are you talking about? Your convoluted argument reminds me of AOL’s defenders back when the AOL empire started to crumble. “We don’t have all the data that [insert company name] is looking at.” On that basis, no one should be allowed to ever criticize any business or sports team or politician or student, since we never have all the data that entity is looking at.

    As for Netflix, we have pretty solid data. What more proof of mismanagement do you need than user defection and a plunging stock? That is solid quantitative proof that the business has gone horribly awry. What are you waiting for, Chapter 11? Netflix’s critics have much more substantiating evidence than Netflix’s advocates.

    Even on a qualitative basis, we have proof that Hastings is hamfisted: his projections of subscriber GROWTH despite the price increase, his own email to every customer acknowledging his missteps, and his naming the DVD business “Qwikster” without researching who just might be using the name. (Seriously, that’s a 10-second search on Google.) The result: widespread ridicule in major news publications. Where’s the managerial brilliance in any of that?

    Now, a lot of people are also criticizing Facebook’s recent changes, some even saying that it’s going down the path of MySpace. However, those critics have zero proof that Facebook’s changes are having either a detrimental or positive effect. You can justifiably mock those critics. But with Netflix, we’ve got flaming, smoking, smoldering proof everywhere. Can Netflix eventually rebound and go on to rule the world? Sure, but you must concede that they’ve blundered big time here.

    Ron, I also fail to comprehend your argument. Why can’t someone call for innovation, then criticize the results? I push my students to write innovative marketing plans, but then I also critically evaluate their end results, not because they tried to be innovative, but because they did not create a good plan. Does that make me a hypocrite?

    If you have a specific example of someone who demanded that Netflix make changes and subsequently criticized Netflix for changing, then show that example, and I’ll join you in mocking them. But just because someone calls for innovation then criticizes the ensuing botched job doesn’t make them a hypocrite.

  9. Freddy
    You are selectively quoting and you did not address my statement on stock prices are not the right metric to use here. One cannot attribute causation simply to a company’s strategy and our perception of the CEO. If the current 50% cut is due to what you call “flaming, smoking, smoldering proof”, what was the reason for sudden run-up to $300 range in just over 12 months. Did something really change or became evident for the market? I think Netflix, even at current prices, is expensive (compared to multiples), but that is different story.

    My comment on not having all the data is to caution that there are uncertainties and we should qualify our claims in terms of likelihoods (probabilities) and state them as absolutes. Account for the possibility that we could be wrong with the claims we make.

    When I was at business school, some of the professors insisted that we make assumptions and take a stand. But there were others who asked about level of uncertainties and explain why despite those we recommended an action. I wonder what you ask of your students.
    -Rags

  10. Rags:

    It doesn’t take an MBA to see some of the reasons why Netflix ran up to $300 (Internet-based company with actual functional revenue model, massive cash flow, faltering old school competitors, multiple cover stories, and continuous growth); or why it lost half its value (unexpected loss of 400,000 subscribers – its first net customer loss ever, the end of the Starz contract coinciding with a 60% rate increase, forecast of substantially higher licensing demands by Hollywood, and the entry of powerful new competitors such as Amazon and Dish/Blockbuster). We can also throw in the massive PR blunder stemming from Hasting’s email and the botched Qwikster naming.

    How much more evidence do you need to take a stand?

    Yes, I teach my students to use data and evidence to support their arguments, but I also teach them about the perils of paralysis by analysis. Sooner or later, an executive better venture an opinion — the assignment is due, the project launch is nigh, the investors want to know if they should stick it out or bail. So do your research, but also earn your paycheck. The company didn’t hire you to just sit there and say, “Captain, I need more time.”

    Despite Netflix’s widely chronicled missteps, and the striking quantitative data describing the aftermath, you refuse to criticize them. At the same time, you offer no explanations of your own. Why do you think the company lost 400,000 customers and half its market cap in a matter of weeks? Pure whim and whimsy on the part of millions of investors?

    If you don’t wish to venture an opinion, fine, that’s your choice, but I disagree with your assertion that others shouldn’t express their ideas about a corporation whose actions and activities have been as publicly documented as Netflix.

    Freddy

  11. Freddy/Rags- I don’t think that short-term stock prices are always the greatest measure of how successful a new business strategy is going to be. I do think the reaction by customers (losing 400,000 customers) is a perfectly valid metric, but I can also see the argument for ignoring that metric. Clayton M. Christensen would make the case that disruptive technology (streaming) poses a major threat to traditional technologies (DVDs) and that a company that offers a better approach to streaming could kill Netfilx the same way that Netflix (with DVD by mail) killed Blockbuster’s brick and mortar strategy. What this really boils down to is Netflix doubling down on streaming and getting away from DVDs (keeping their established brand name for streaming and introducing the not-well-thought-out name Quickster is all the evidence you need). This strategic decision is angering a lot of current customers, but Reed Hastings is betting that a continual focus on mastering disruptive technology (which is why Netflix got into streaming in the first place) will trump negative customer and investor reaction in the long run.

    Ron- I agree with your critique. People are always extolling companies to embrace change and innovation and to keep pushing the envelope forward (pun intended). Well people, this what innovation looks like. It’s messy, chaotic, and almost always unpopular.

  12. If “innovation” consists of reducing product choices while increasing prices, no wonder the U.S. economy is under-performing. Based on that equation (less selection + higher prices = innovation), maybe Netflix should offer just one movie and charge $100 to watch it. (OK, I’m oversnarking, but this is too easy.)

    On another note, exactly how is streaming video “pushing the envelope”? It was innovative in 1994; in 2011, who doesn’t offer streaming video? At some point, the Hollywood studios are just going to say, who needs the aggregators? We’ll just do it ourselves. Oh, wait, they already have: it’s called Hulu.

    By the way, Netflix apologists, I hear you can get a great deal on the stock today. Please do tell the rest of us how many shares you’re snapping up.

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