The title of this post requires some parsing: thewith its 60% price hikes in its on-demand and DVD media services comes less from the price increases but in its ham-fisted announcing of those increases (note the 5000+ responses to the blog post linked to above). the angry, reactionary, and carefully-considered responses that flooded Netflix’s social media outlets (Facebook, Twitter, and the company’s own blog). If the posts are largely to be believed, Netflix membership is going to plummet come September, when the new rates go into effect for current subscribers.
This week we see what calmer heads have been saying about the rate increase and the ways Netflix has tried to run damage control. As I wanted to emphasize before, I am not a subscriber (though I might still do so), and we wanted to view the issue as a marketing and social-media concern that can provide insight into issues your organization might need to face. Netflix clearly has a PR problem on its hands at the moment: To have what they would have, they speak not what they mean.
The ever-entertaining and ever-insightful David Pogue of The New York Times admitted complete incredulity over the price hike, because even Netflix admitted the price hike was not to cover rising costs in streaming technologies or licensing from content providers. The decision (not surprisingly) was a business one, meant to cover the costs of shipping, storing, etc., the still-popular DVD orders.
Mr. Pogue spoke with Steve Swansey, a Netflix spokesman, about the changes. The full exchange is in Pogue’s column, and we have excerpted a meaningful exchange here:
[According to Mr. Swansey] Netflix knew that there would be a nasty backlash, and has already taken the subscriber defection into account in its financial forecasts. It still figures it will come out ahead. (I found this part a little creepy.)
I kept saying to him: “O.K., look. In November, $10 a month for one-DVD-plus-streaming seemed like a viable offering. Now, eight months later, you need to charge $16 for the same exact offering. You say your costs haven’t changed that much. You say the new studio contracts aren’t to blame. The only other possibility I can think of is that your initial $10 pricing was a mistake.”
He wouldn’t agree. He sort of came close, though, when he said that the unexpected success of the streaming service shifted the balance of power between it and the DVD business. Originally, it was “pay $10 for one DVD—streaming free!” Almost overnight, though, people began thinking of it as, “pay $8 for unlimited streaming—and get one DVD for $2 more!”
“That’s not sustainable for the longer life of DVD’s,” Mr. Swasey said. “We need more revenue. It’s a business concern we have to address. We want two separate business units, each side of the service. We were not able to fulfill the requests for DVDs at that cost.”
The size and timing of that price leap still don’t make sense to me. Especially when Netflix used to be considered such a good-hearted, consumer-focused company. The way it handled this shift feels extraordinarily blunt, ham-handed and emotionally tone-deaf.
And, at the end of the day (or ‘column’) David Pogue has to admit that even with the price hikes, Netflix is still probably the best available service of its kind. Will the ‘blunt, ham-handed and emotionally tone-deaf’ announcement really be enough to drive people from its service? Will this be the winter of viewers’ discontents?
Jason Yormark at SocialMediaToday.com was even more willing (at first) to praise Netflix, not bury it. But his account (of 16 July) stresses the likelihood (one denied by Mr. Swansey to David Pogue) that Netflix is not coming clean with the rising costs of licensing and delivery.
Really, Netflix? I know there are plenty of people in the world that you might think this would fly with, but most people can read between the lines. This isn’t about offering added value or choice, it’s about you having to raise your prices because the studios are increasing your operational costs.
In the world of social media, nothing kills goodwill like an apparentin communications. Social media success depends on trust relationships, not life-and-death trust, but honest appraisals of an organization’s situation, expectations, and requests from its constituents and customers. Again Josh Yormark:
Netflix does a lot of things right, but not being open and transparent about their subscription changes are currently hurting them as they are taking a beating in the public’s eye. … People understand that the prices of things go up. It’s a part of life. Sure they would have still experienced some backlash, but nowhere near the level if they had just come out and had not try to hide it behind silly statements [about great deals at almost twice the price].
Transparency and authenticity always reign supreme when it comes to communicating to your audience, and when you don’t, people tend to call bullshit. Netflix is learning that the hard way.
Unclear how long this brouhaha will last, though expect it to flare up again when the September bills from Netflix get sent around. As for the use of social media, transparency is an expectation, not a lofty goal. Make sure your organization practices it, else the truth will out.