How Netflix Could Have Made Bad News Better

by Ryan M. Healy on September 19, 2011

In July 2011, Netflix stepped into a hornet’s nest when they sent out a short matter-of-fact email announcing the equivalent of a 60% price increase with almost zero explanation.

netflix price increase 300x285 How Netflix Could Have Made Bad News Better

Netflix Price Increase Email

In case it is difficult to read the image, here is the text from the email I received on July 12, 2011:

Dear Ryan,

We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

     Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
     Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming) for $7.99 a month

Your price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). You don’t need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.

These prices will start for charges on or after September 1, 2011.

You can easily change or cancel your unlimited streaming plan, unlimited DVD plan, or both, by going to the Plan Change page in Your Account.

We realize you have many choices for home entertainment, and we thank you for your business. As always, if you have questions, please feel free to call us at 1-888-357-1516.

–The Netflix Team

“Okay, But WHY?”

Even the most inexperienced direct marketer knows that you must always give a reason why, especially when you’re raising prices and especially when you’re raising prices in a consumer market.

And yet Netflix overlooked this critical detail.

As you can imagine, the backlash has been vociferous.

Tens of thousands of angry Netflix subscribers published their reactions on their blogs and Facebook pages. More than 12,000 people left comments on the Netflix blog alone.

Obviously, the price increase was not well-received. In the two months following the price increase, Netflix lost a million subscribers.

After 69 days of hemorrhaging customers, Netflix finally issued a public apology on September 19, 2011. But it wasn’t much of an apology. Rather, it was another major announcement posing as an apology.

Major Announcement Disguised as an Apology

“I messed up. I owe you an explanation,” began CEO Reed Hastings’ email.

Yet the apology came across as a cover for more bad news.

Netflix would be separating its DVD and streaming services into two completely different business entities. The streaming business would retain the Netflix name; the “new” DVD business would be called Qwikster.

Worse still

Hastings’s apology for not communicating with users about the price changes has made his customers even more upset, since he isn’t apologizing for changing prices but simply for not telling users about it more clearly. That set off a lot of backlash from consumers who felt it was a disingenuous apology.

Netflix customers are now complaining that splitting the streaming and DVD businesses into separate entities will make it more inconvenient for them because…

Now You Have to Manage Two Queues Instead of One

Instead of one centralized queue for all movies you want to watch, Netflix customers will now have two separate subscriptions, billed by two separate companies, with two separate movie queues on two separate web sites. Movie ratings and reviews posted to one site won’t be posted to the other.

In other words, the creation of Qwikster alongside of Netflix creates a lot of extra work for customers who would like to continue receiving DVDs by mail plus the ability to stream movies through the Internet.

Even though the announcement is only hours old as I write this, the Netflix blog has already received more than 13,000 comments — more comments than the previous price increase announcement received in two months.

It’s no surprise, really.

First, Netflix effectively increased their prices by 60%. Then they added insult to injury by creating more work for their customers by forcing them to manage two separate movie queues on two separate web sites.

More expensive and less convenient.

Not exactly a good recipe for winning over your customers.

How Netflix Could Have Done It Better

Now, I don’t run a publicly traded company, so I realize it’s a bit presumptuous for me to give Netflix business advice. Nonetheless, I feel they could have handled the present situation much better than they have.

Here are three specific ways Netflix could have done it better:

  1. Provide customers specific reasons for the price increase.
  2. Keep both DVDs-by-mail and streaming video under the Netflix brand.
  3. Continue offering customers a discount for subscribing to both services.

Let’s look at each of these in greater depth.

1. Provide Specific Reasons for the Price Increase

A 60% price increase is not insignificant even for a service that originally cost only $9.99 a month.

If ever there was a time to hire a professional copywriter, it was in a situation such as the current one. If I had been in charge, I would’ve written something like this…

Dear Bob,

First, thank you for being a Netflix subscriber. We’re in business to serve you in the best way we possibly can, and we thank you for your business.

Secondly, we have a very important announcement. We’ve been doing everything in our power to avoid a price increase these last few years. And yet we now find ourselves pressured into increasing our subscription fees.

With that in mind, the cost for unlimited DVDs by mail will now be $7.99 a month. And the cost for unlimited video streaming will also be $7.99 a month.

You can save $3 a month by bundling the services. The cost for both unlimited DVDs and streaming will be $12.99 a month.

We realize this is a significant price increase. Why so much? And why now? Here’s what’s been happening behind the scenes…

As you may know, the Post Office is not doing well these days. They’re losing billions every year and may soon go bankrupt. Because of this, they’ve been increasing the cost of postage. We now pay X% more to send a DVD through the mail than we did just X years ago.

After reviewing our books, we realized we have no choice but to increase the price of our plans to cover the costs of increased postage.

At the same time, we’re facing pressure from cable companies, movie studios, and other content providers. Many of our original licensing contracts have expired or will expire in the next 12 months. We are re-negotiating these contracts so that we can continue to provide you with the widest selection of streaming content possible.

Here’s the problem. Since we signed our original licensing agreements, we’ve grown a lot. Cable companies and movie studios are not willing to renew our contracts under the original terms. They want more money.

For example, we were recently negotiating with Starz. We offered them $300 million to continue licensing their content. This is ten times as much as we paid them X years ago. They still said no.

Liberty Media, a company that owns a major cable network, is trying to strong-arm us into raising prices much higher than the $7.99/mo. subscription fee we’ve settled on. It is a clear case of greed on the part of cable networks and movie studios, and we’re doing our best to keep costs as low as possible.

Clearly, streaming is the future of the movie and TV business. At the same time, the cost of licensing those movies and TV shows is going up. This is why we’ve found ourselves in the uncomfortable position of raising the price of our streaming plans at the same time we are raising the price of our DVD plans.

It is not ideal, and it’s not something we wanted to do. But circumstances have forced it upon us.

Please know this: The change in prices is going to allow us to bring you the best selection of streaming content we’ve offered to date. You won’t see our streaming movie library double overnight, but you should see hundreds of new titles starting in September and October of this year.

Again, we appreciate your business and your loyalty and will continue to fight to keep costs as low as possible while offering the biggest selection we can.

Sincerely,

Your friends at Netflix

I believe a detailed approach like the one I’ve written above could have minimized the backlash and possibly generated some good will at the same time.

2. Keep Both Services Under the Netflix Brand

Clearly, keeping both the streaming and DVD-by-mail services under the Netflix brand makes it much easier for subscribers to manage their movie queues.

It also makes Netflix a stronger brand.

While some people are predicting the end of the DVD by mail business, I predict it will stick around a lot longer than people think. That’s because I think it will take many years before any company will have the ability to stream a movie with the same resolution as a Blu-Ray disc.

I recently upgraded my Netflix plan for this very reason. I wanted to be able to get Blu-Ray discs.

Frankly, I’d rather see a good movie on Blu-Ray. Better picture, better sound. I only use Netflix streaming when I’m less concerned about sound and picture quality. So I use it primarily for TV shows (like The Office) and cartoons for my kids.

3. Continue Offering a Discount for Bundled Service

Now that Netflix is introducing Qwikster, it will be difficult for them to offer any kind of discount for subscribing to both services. But it seems like common sense to reward people who are spending more money with you.

Not only that, offering a discount for bundling both services together would have softened the impact of the price increase and given back some control to Netflix customers. I don’t think the backlash would have been quite as severe if they had continued to offer this “volume discount.”

So, What Do YOU Think?

How do you feel about Netflix right now?

Do you think they’ve handled the price increase and apology well? Or do you think they could’ve done it better?

What would you have done if you had been in their shoes?

Please leave a comment below.

-Ryan M. Healy

Selected Sources:

About Ryan M. Healy

is a direct response copywriter. Since 2002, he has worked with scores of clients, including Agora Financial, Lombardi Publishing, and Contrarian Profits. He writes a popular blog about copywriting, advertising, and business growth, has been featured in publications like Feed Front magazine, and has been published on sites like WordStream.com, SmallBizClub.com, and MarketingForSuccess.com.


The Best Link Cloaker?
I've tried a number of link cloaking solutions through the years. None of them provided me with what I wanted. But thanks to Michel Fortin, I discovered a new link cloaking and link tracking service that I’ve fallen in love with!  Read My Review Here »

{ 31 comments }

Jim Yaghi September 19, 2011 at 1:55 pm

Ryan,

i LOVE your revised letter. i never saw the original letter myself, but i would have been offended to receive it just like you and so many others were. 

an explanation really does go a long way – i wonder why they didn’t think to give one?

hopefully Netflix can recover from this screw up. perhaps they need to get you on their team to write for their CEO :)

jim

Ryan Healy September 20, 2011 at 7:40 am

Thanks for your comment, Jim.

If Netflix is anything like other clients I’ve worked with, they’re probably afraid of revealing too much, being too open and up front, etc.

Thing is, being open and honest is what works.

Rob Metras September 19, 2011 at 2:18 pm

Great job in the reply it answers the question in the prospects mind. It also gives three choices that are not confusing because they hold the supposition in advance that you will continue to buy and thus lead the answer to what the customers wants. You should consider sending this post to Reed Hoffman or his marketing VP as a calling card for a thoughtful, somewhat great copywriter before any of your competitors do. :)

Ryan Healy September 20, 2011 at 7:42 am

Thank you, Rob. :-) Who knows… maybe this post will find its way to Reed’s desk at some point.

Scott Fox, Author e-Riches 2.0 September 19, 2011 at 2:20 pm

Nicely said, Ryan.

It sure seems like Netflix has caused both themselves and us customers a lot needless trouble. 

JosephRatliff September 19, 2011 at 2:32 pm

It was mighty presumptuous of Netflix to assume the price increase would just “be acceptable” to their customer base with no explanation.  I don’t subscribe to them, but because of this, I never will.

The original email gave me a “Here’s our price increase, deal with it” feeling.

Your rewritten email gave more of a “Sorry, we understand you might not like a price increase, but at least here’s a reason why we’re doing this” feeling.

I can say with full confidence that if I had received their original message — I would have cancelled immediately…I don’t need videos that bad. :)

But I can also say that if I had received YOUR version Ryan, I would at least have considered staying on board (but again, I don’t need videos that bad, LOL).

Ryan Healy September 20, 2011 at 7:47 am

What’s interesting to me is that companies go through different phases. Netflix has in the past demonstrated the utmost concern for its customers. For instance, see this post I wrote two years ago:

http://www.ryanhealy.com/netflix-preemptive-apology/

Let’s hope Netflix is able to get back in the good graces of their customers.

Jason Hart September 19, 2011 at 2:37 pm

Hi Ryan,

I to have posted about this situation today.  First of all, I think Netflix just hosed themselves badly, recover will be long and arduous.  As a copywriter and marketer I too would have handled it differently.  For one thing, never alienation your customer base (our president is having the same problem but that’s a different story).  I would have sent out a similar email to yours making a special offer.  Right now Redbox is the clear winner.

Ryan Healy September 20, 2011 at 7:51 am

There’s a saying among traders, “The bull walks up the stairs, the bear jumps out the window.” This is to say that the market rises slowly, but falls fast.

This applies to business as well. It takes years to build up a loyal customer base. But it can all be wiped away within a few months by a handful of poor decisions/actions on the part of the company’s leadership.

John Lenaghan September 19, 2011 at 2:48 pm

It’s interesting. I’m a streaming-only customer so the price increase didn’t affect me anyway. So I wasn’t annoyed by it, and frankly didn’t really pay it a lot of attention.

But when I got the “apology” email, it actually had the opposite effect that was intended – it annoyed me. Not because I’m going to be paying more or having to manage separate queues. Simply because it struck me as a stupid response to the issue on their part.

If they can’t see how that would only make people angrier, what else are they going to do wrong? Now I’m waiting for the next dumb move on their part, and expecting that at some point a bad decision *will* affect me.

Ryan Healy September 20, 2011 at 7:54 am

Excellent observations, John. I think your feeling represents how most people have responded. A lot of head-scratching going on.

By the way, I thought this cartoon by The Oatmeal did a spot-on job of illustrating the nonsensical way Netflix has been acting:

http://theoatmeal.com/comics/netflix

Rick Butts September 19, 2011 at 2:54 pm

Excellent ideas and insights Ryan. Proving once again you are a very clever copywriter who totally “gets it.” Thanks!

Ryan Healy September 20, 2011 at 7:54 am

Thank you, Rick. :-)

SurvivalWoman September 19, 2011 at 3:45 pm

Perhaps the new DVD entity should be called Greedster.  Whatever they call it, if long time Netflix subscribers are anything like me, they have dropped one of the two services and are searching for alternatives.  In our case, we are considering Video on Demand or even Red Box as a supplement to streaming.

Your revised letter should have been their first shot out the door, once again proving that the little guy is not only smarter but also more in tune with reality. 

– Gaye

Ryan Healy September 20, 2011 at 7:55 am

Thank you for the compliment, Gaye.

As you pointed out, I bet Red Box will see a noticeable uptick in movie rentals as a result of Netflix’s latest moves.

freebies September 19, 2011 at 3:51 pm

Brilliant writing Ryan. I can only assume it would have gone much smoother if they had hired you to do it instead of some flunkie..”CEO”..lol Great work as usual..Ron David

Ryan Healy September 20, 2011 at 7:56 am

Thank you, Ron. :-)

Marc Harty September 19, 2011 at 4:11 pm

Ryan,

It’s great when you can use very visible public events to prove a point. So let me add on to what you were saying.

Not only did they need a new copy approach, they also needed a better public relations approach. It sounds like they were timid and not authentic and it cost them in terms of their public image.

So what I’m saying that this situation has a holistic component that includes copy, PR, business strategy, branding and more.

Having working years ago on the Motel 6 campaign taught me the value of your operations approach being consistent with your company brand and character.

Ryan Healy September 20, 2011 at 4:52 am

Marc – You may already have seen this, but the Qwikster handle on Twitter was already taken before the new brand was announced. It’s owned by a guy who appears to be a pot-head. People are now speculating whether or not Twitter will intervene to transfer @Qwikster to @Netflix.

Can you say PR disaster?

Marc Harty September 21, 2011 at 9:08 pm

Ryan,

One man’s disaster is another man’s comedic fodder. Enter Conan with a funny mock video…

http://teamcoco.com/video/netflix-apologizes

I love the unique add on services and more liberal return policy. :-)

Marc

Ryan Healy September 22, 2011 at 6:44 am

That’s a pretty funny video. Thanks for sharing. Now I think I’ll go sign up for “The Blind Side Plan” – awesome!

Jenny Dunham September 19, 2011 at 5:10 pm

Ryan,

I only wish I had gotten the letter you wrote instead of the one I got. When I got the actual email from Netflix, I felt like I had been blindsided with no explanation at all. I’m still a customer but I’m not happy with how they handled the price increase and see no reason why they’re splitting up the company to handle different types of media. You would think they would reward loyal customers; instead, it seems like they’re doing everything in their power to alienate us.
It’s too bad they don’t have someone as astute as you on staff to help them. At this time, I don’t foresee a very positive future for the company.

Jenny

Ryan Healy September 20, 2011 at 8:00 am

Thank you, Jenny. I, too, feel like they’re alienating their customer base. It seems to me they should’ve asked their customers for feedback before making such big, sweeping changes.

A simple survey would have told Netflix exactly how their customers felt — BEFORE implementing the changes.

Dana Houser September 19, 2011 at 5:24 pm

I don’t remember the original letter and I just received the apology today.  They should definitely keep it under the same/one name… Netflix.  Lots of companies offer multiple options under one name.  And you’re definitely right on track with a discount for doing both streaming and dvd’s.  I know I’m just going to use the streaming option for now.  I can go to Redbox for $1 and get what I want on dvd.  $2 if I forget to take it back the next day.  

Ryan Healy September 20, 2011 at 8:02 am

Does Redbox offer Blu-Ray discs or just DVDs? If they don’t offer Blu-Ray, then that’s an advantage that Netflix — I mean, Qwikster — still has. Otherwise, Red Box looks more appealing all the time.

Saxton September 20, 2011 at 10:02 am

I switched to Amazon Prime. For the amount of movies and TV I watch, that covers the bases. Plus I get free 2-day shipping on all of my purchases. Because of poor customer service, Best Buy lost me as a customer a few months back as well. Amazon Prime filled that gap pretty quickly, has lower prices, and no tax. It’s a win-win-win situation…unless you are Best Buy or Netflix.

Ryan Healy September 20, 2011 at 10:13 am

Saxton – Do you watch streaming videos from Amazon only on your computer, or can you watch them on your TV, too? I’m an Amazon Prime member and have wondered about that.

Jim Sansi September 21, 2011 at 11:01 am

Clearly the PR folks did a bad job. You have to believe the lawyers where involved in the communication as well.

I welcome the price increase, if the quality of the titles available on the streaming service improves. As it is, it sucks.

Now everything else aside; if folks are complaining about $15 a month cutting to deep then perhaps they ought not be a subscriber in the first place. How dare Netflix deprive people of DVD rentals!

Ryan Healy September 21, 2011 at 2:34 pm

I agree, Jim. I’m fine with a price increase if it means better service and/or better selection. If this was their plan, they should have explained that in their email.

I also agree that if an extra $5.99 a month is going to put you over the financial edge, then you shouldn’t be a Netflix subscriber in the first place.

John C. A. Manley October 19, 2011 at 8:01 am

They should definitely being paying you whatever you want to be their copywriter. I hope you send them a copy of the blog post.

Zip.ca (Canadian DVD-by-mail company) just did something similar. They rose the price about $3 a month, I think. But they added a $1 fee for every blu-ray mailed. After reading your post I checked their forum and they had a number of unhappy people about the $1 fee on blu-ray: http://forums.zip.ca/topic.php?id=4288

They did a better job with their email, though. I’ll forward you a copy. Not as good as yours. 

Ryan Healy November 2, 2011 at 3:30 pm

Just received this comment by email from an anonymous Netflix customer:

Saw your proposed copy that Netflix should have sent to
subscribers. You’re right, it is a softer approach that explains Netflix’s
predicament.  However, it continues to be my firm believe that those execs
who made this decision are probably light years removed from the general
public.  To implement a 60 percent increase even on a small amount like 10
bucks lacks any kind of concern for what might be acceptable.  I put my
subscription on hold not because of the money but because it is the only way to
show displeasure.  I will probably cancel the subscription after the first
of the year because their insensitivity just does not deserve my
business.

Comments on this entry are closed.

{ 3 trackbacks }

Previous post:

Next post: