Our Galtian overlords: pretty fucking far from inventing a perpetual motion machine.
Reed Hastings was soaking in a hot tub with a friend last month when he shared a secret: his company, Netflix, was about to announce a plan to divide its movie rental service into two — one offering streaming movies over the Internet, the other offering old-fashioned DVDs in the mail.
“That is awful,” the friend, who was also a Netflix subscriber, told him under a starry sky in the Bay Area, according to Mr. Hastings. “I don’t want to deal with two accounts.”
Mr. Hastings ignored the warning, believing that chief executives should generally discount what their friends say.
He has since regretted it. Subscribers revolted and many dropped the service. The plan further tarnished a once widely respected Internet service that had already been wounded by an unpopular price increase in the summer. Mr. Hastings was forced to reverse the planned split — but not the price increase — three weeks later and apologized.
On Monday, the company revealed the damage that had been done. It told investors that it ended the third quarter of the year with 800,000 fewer subscribers in the United States than in the previous quarter, its first decline in years. The stock plummeted more than 25 percent in after-hours trading.
Give that man a tax break. And, please, Obama, start listening to the job creators.
If I were on that board of directors, I would fire that stupid fuck so fast it would make your head spin.
Jim, Foolish Literalist
is there time to fire him quick enough so he can run against Dianne Feinstein as successful executive with real world business experience?
anybody just hear somebody yell “I’ll fucking kill you” on the football?
Hastings wrote an op-ed in the NY Times arguing that we ought to raise taxes on the rich:
ETA: Splitting DVDs and streaming was dumb, though.
Obviously, Mr. Hastings was reacting to the boot heel of over-zealous government regulation.
I’ve always wondered how fast that was? RPMs or finite speed?
this is going to be the textbook example of a stupid business decision, for decades.
I, for one, would love to see Netflix go down. But that’s only because I’m a dirty social.ist who prefers to have choices in the marketplace.
Also, DougJ, I’m surprised you didn’t comment on NPR dropping that Opera show because that lady participated in #OWS.
Can any institutional investor look at their Netflix holdings and say, “Eh, dude’s trying really hard.”
How is this guy still in charge?
Wonder how big his golden parachute is?
Of the few business decisions in this world that affected my livelihood directly, each of them unfolded like this: some one person at the top of the food chain got some stupid fucking idea in his head, and refused to entertain the remote possibility that maybe, just maybe, it was a stupid fucking idea.
How did I cringe so hard when I read what Netflix was planning but these guys making $Millions get to keep their jobs?
@cleek: Blockbuster passing up Netflix for $50 million ranks right up there, along with the first
2112 publishers that turned down J.K. Rowling’s novel about a kid wizard.
The Dougerhead, wasn’t there some tie-in for a Hot Tub Time Machine here?
But if you fire him you’ll still have to pay off his Golden Parachute.
Better still to demote him. To say, janitor.
Jim, Foolish Literalist
So Hastings is kind of a hump, is what I’m reading between the lines here.
@cleek: and the guy who thought up New Coke breathes a huge sigh of relief.
Belafon (formerly anonevent)
Does anyone remember NeXT? There was an ass that nearly ruined the company with that idea as well. Interestingly, though, that’s not what he got fired for. But then Apple brought Jobs back when the board realized no one else knew how to run the company. As much as the guy screwed up this decision, I don’t think anyone will be nearly as visionary as him. We know what Blockbuster would be doing if it weren’t for Netflix: Squat.
Hastings unquestionably made a dumb decision but the most cursory research into the guy should make anyone describing him as a Galtian overloard pushing for tax breaks wince.
Reed Hastings was soaking in a hot tub with a friend last month when he shared a secret
Worst opening slashfic sentence EVER!
West of the Cascades
What’s really awesome is the Netflix banner advertisement on the site right now. Like I really wanna click on that POS.
Doug, Doug, Doug. You just don’t treat your pals on the board of directors that way. If you start firing them for incompetence, somebody might fire you for incompetence, so nobody who counts wants to go there.
@Belafon (formerly anonevent): Are you suggesting Hastings should start parking in Handicap Parking spots?
I already did.
The brilliantest decision would be to totally cancel the DVD delivery system altogether. It would force the studios to actually allow streaming of new releases. I’m pretty close to just going with rentals of new releases and keeping streaming, but I’m pretty sure I would spend more money in the long run. At least we have to admit that Hastings leotarded decision was pushed by the conditions set by asshole entertainment CEOs.
I didn’t mean to suggest he did.
Uncle Clarence Thomas
@Jim, Foolish Literalist:
Yes, exactly. And just the opposite for the Genius of Justice who thought up SUPER COKE!, which is in its own way a huge relief.
The biggest problem for Netflix are the licensing fees for streaming. This decision didn’t help, but they were going to be hit hard simply because of the higher pricing. Watch, now, as the company is squeezed out of the streaming market as the contract renewals come due. That or they will be acquired by a bigger media firm.
Reed Hastings’s friend gave him direct and instant customer feedback on his proposal; he chose to ignore it, out of a sense of CEO entitlement, and his business suffered the consequences. Serves him right, I say.
Rather than dismiss his friend’s customer concerns out of hand (some friend he is) Hastings should have taken the cue to seek out more customer feedback. He’d have wound up with a better sense of customer sentiment, and maybe the wisdom not to carry out a bad idea. His company would have kept those 800,000 customers.
If only Netflix had a CEO like Herman Cain to explain the service split in terms people can understand… it’s apples and oranges, man!
@Loneoak: I suggested that his plan to split the businesses in two was a hedge against the Teatards destroying the USPS. Their business model is beholden to the post office continuing to exist and function around the clock, but doesn’t it seems like the Republican half of congress has it in for the mail?
a hip hop artist from Idaho (fka Bella Q)
@Amir Khalid: But he was too stupid to consider it “customer feedback,” electing instead to characterize it as “advice from[a]friend.” He really is a stupid fuck.
Excellent post and let me just say this….when I saw the changes coming down the pike I immediately decided to take drastic action. I was a 5-DVD out at one time with unlimited internet usage subscriber for many years paying nearly $40 per month. Seeing the new fee structure and having read absolutely nothing about what was happening, I simply decided to say FUCK YOU NetFlix and I changed to now pay only $5.95 per month for only 2 DVDs out per month with 2 hours streaming video.
NOW NetFlix has to operate on about $76 per year from me as opposed to over $400. Are you feeling better Mr. Hastings? Good God your intelligence astounds. Good luck with all that.
Add to that: M & M’s telling S. Spielberg “you want some ugly little alien eating OUR candy? NO WAY”, and 20th Century Fox, rolling their eyes at George Lucas re Star Wars; “Merchandising rights? like selling toys? Oh, those are all yours”.
The brilliance of those in charge never ends.
@Dougerhead: Musta missed it. Last I saw burnspesq was accusing you of having no evidence for assuming NPR was involved with her initial firing.
Villago Delenda Est
This is why you’re not on any boards, Doug. You don’t understand…once you’re in The Club, you can’t be fired, even for gross incompetence. Ask Carly Fiorina if you don’t believe me…
They’d never do it because nobody is fucking willing to pay for it. The cost of maintaining the flow of content is $30-$40/mo. Netflix can’t get there. They lost almost a million subs when they raised prices by $1. Yeah, you may only want $4 of that flow, but I want a different $4, and Doug want’s a different $4. We’re all subsidizing each other’s content, but take away that cross-subsidy and we’re still all going to have to pay that $30-$40, but everything will wind up being 4x more expensive to get the revenues where they are now.
Netflixs 2 disc DVD plan is $12/mo. Average out time per DVD is 10 days, so you’re getting an average of 6 rentals per month, or $2/rental. Because you still need to wait 3 days to watch something and can only watch two things over a 3 day period, the DVD plans don’t present a threat to a cable sub. Once you introduce a streaming plan, where you can pick on the fly, and where you can watch any number of things to fill your evening, then cable is threatened and people have been unplugging cable because of Netflix streaming. So why should studios let you stream a new release for less than $2, particularly if you are going to unplug the $30-$40/mo in revenue that’s going to them?
Netflix’s streaming business model is completely fucked. I agree it’s attractive. It’s a great service for consumers, no question, but studios are getting fucked and they know it, and they’re not going to voluntarily stand there and get fucked. Honestly, Netflix made it too good relative to the price, consumers recognized that, flocked to it, and now Netflix is finding they can’t afford to maintain it and they can’t convince users to pay more. The only outlet for the streaming service to survive I think is if DirecTV buys them, which is what I predict will happen, especially now that they’re down to $4.5B market cap (assuming DTV can even afford that). In that model, like the Dish/Blockbuster model, the streaming can’t undermine cable revenues.
There was once a chain of pharmacies in SoCal called Savon; I don’t know how far the franchise went, but it was big in this area.
Anyway, they had the fucking brilliant idea to change their name to Osco…
…which just happened to be close to the Spanish (slang?) word for “ill”. Osco failed in short order.
I was willing to pay more, but I seriously considered bailing because of the 2 different company bullshyt.
Holy shit, you’re right! I did miss it.
Will you handle burnie for me if I post on it?
True genius. Since the U.S. has the slowest and most costly broadband in the world, outside of shitholes like the Sudan, this would result in most of the Netflix’s subscribers canceling their subscriptions. I sure would. I don’t have broadband. At all.
And as more and more American ISPs announce data caps and price increases and use ever more throttling to reduce their bandwidth, the future of internet-delivery movies and TV in America is dead. No surprise. Hey, genius, did you ever bother to inquire who owns most American ISPs? Giant movie studios that also own TV networks and cable TV networks, that’s who. Obviously Time-Warner doesn’t want Netflix eating away its viewing audience, you stupid twit, so Time-Warner internet makes damn sure to throttle and cap its internet service so that Netflix instant viewing movies and TV shows cost so much and burn through your monthly broadband data cap so fast that you won’t opt for Netflix content delivered by internet.
Give this commenter a raise and billions worth of stock options! He’s made a “brilliant” suggestion so spectacularly moronic, he could run a major fortune 500 company!
I’m a semi-luddite, so I’m not into streaming. I subscribe to Netflix’s 2 DVDs at a time service, and I’m happy with it. Hastings made a bad decision, but he fixed it pretty quickly, compared to, say, the poor decisions made by the U.S. auto industry — they multiplied their mistakes over decades. I say he gets another chance.
Villago Delenda Est
If you want to talk about your massive corporate fuck ups, let’s mention Sony Online Entertainment’s absolutely BRILLIANT idea to change their MMORPG Star Wars Galaxies radically (with the so called “New Game Enhancements”), which cost them at least 75% of their player base the day they implemented it, customers who had pleaded with them NOT to implement it after they got a preview of it on the test servers.
My SWG guild disappeared overnight due to this change. The game has limped along for six years now after this, and it is finally being shut down five days before the new Star Wars The Old Republic MMO comes online.
I find this hilarious.
When/if they start charging $30-40/mo. for streaming is when/if I give it up totally. Fuck ’em. I’ll watch cats playing pianos.
@Jim, Foolish Literalist:
I heard that they made new Coke not taste good, with the express purpose of bringing attention back to the brand. Then brought back “classic” to capitalize on the controversy…
It coulda happened like that…
/puts tinfoil hat back on
As a marketing researcher by trade, I think someone should have spent a few thousand testing that decision.
@arguingwithsignposts: Well, they don’t need you to pony up $30-$40, they could get there with ad subsidies, or with some diversification of the content like they do now with cable tiers, but at the end of the day, they need $30-$40 per month per household on average or they won’t have the revenue to produce the content in the first place.
Mr Stagger Lee
@cckids: Or Decca Records telling Brian Epstein that groups with guitars are passe. And told him and his group The Beatles, to take a hike.
@Amir Khalid: oh yeah, like any CEO actually listens to their employees or their customers…. jaysus man, do you UNDERSTAND wtf you’re saying?
@The Dangerman: There’s a germ of truth in what you wrote about Sav-On/Osco, but only a germ. Long story short, a pre-existing chain called Osco acquired Sav-On, tried to change the name, and found that people in the west liked the Sav-On brand, so they changed it back. We still have Osco in the midwest and I see plenty of Latinos shopping there.
As for Hastings, he made what appears to be a bad decision. But who among us hasn’t? And given the long-term unsustainability of his business model, I’m not entirely sure that he made a bad decision as opposed to an unpopular decision.
Corner Stone at 41: why? The comment was purely rhetorical, since neither I nor any other commenter here has the least little influence on Hastings’ future. Feel free to be amused, but I’d like to know why. Do you think Hastings’ decision was so bad that he should be fired? He’s made good ones: do they not matter?
I know a CEO who’s going to get a multi-million dollar bonus this year! Conversely, I know of a few thousand employees who are about to get laid off because of his stupidity.
I wonder if anyone inside NF told Hastings that this was a bad idea. Or if he came in one day and said “We’re doing this”. Everyone has good and bad ideas. It’s what one does with either one that makes things better or worse. As a CEO he should have people around him that will tell him the truth about his bad ones. OK, wait a minute while I stop laughing at myself.
Considering the response to the separation I would think a superficial review of the idea would have told him the idea sucked. So I’m guessing either he doesn’t listen or no one around him had the stones to tell him. That’s not the picture of a good leader.
@Ruckus: I don’t think Netflix has that kind of management discipline. They’ve got 2000 employees, so they’re pretty small. And honestly, I think they’re stuck – a victim of their own success, and they don’t know how to get out of it. That happens sometimes, particularly when you have a single revenue model and are trying to break new ground. I think they’re flailing a bit with all the new pressure they’re under now that the competition (the cable companies) have caught them up and now that the studios are considering fundamental changes to their side of the contracts.
You paid about $480 a year to sit on the couch and watch 5 DVDs per week and you’re questioning someone else’s intelligence?
@mclaren: Nice rant, but you might want to check your facts. Time-Warner broadband doesn’t have a monthly cap (feel free to insert “yet” here, if you like).
If the friend shorted the stock, would they both go down for insider trading?
Here is my dilemma. I hate them all -Netflix, Comcast (my only choice here) Dish, Direct, etc. I always feel like I’m getting screwed over by them AND I love movies and quirky tv shows and just about anything BBC or CBC or New Zealand film council, etc.
I have three giant, hollow boys so I can’t afford to go to the movies except for something special like the one about the wizard kid. A large popcorn and a classic coke at the theater is about $15-$20 –that’s some serious cash x3 plus the $10-$12 a piece for the tickets.
At the end of a rough day at work and then the after work chores and homework herding, I look forward to discovering a sweet movie like Sabah. So for now I will probably just sit tight with my Netflix subscription regardless of how messed up their Decider is–unless the balloon-juicers here have some suggestions for me.
Based on pure fundamentals the obvious answer is that he clearly should be fired.
NFLX started the year trading at $175 and as of this am it is $75, or a loss of about 56% in the share price YTD. And that’s disregarding the interim where it hit a high of $300+.
By comparison the NASDAQ is about flat YTD and the Russell 2000 is down roughly 6%.
How do you not focus group a set of subscribers and come up with the immediate answer that the proposed change to your company’s lifeblood is a disaster?
There are so many things wrong with decision making the last six months at NFLX that I don’t have time to list them all.
He net lost 800K subscribers in just the 3rd quarter!
I’m with Atrios on this:
“Netflix has a near monopoly which anyone else would find it difficult to take away on not only DVD rentals by mail, but DVD rentals period. They also have a side business in streaming video. The former is a bit of a problem because round trip for a DVD costs them a buck or so.
“The latter is a bit of a problem because their library is small, doesn’t include many new releases, not everybody has broadband access, those who do have access are dealing with bandwidth caps, and it will endlessly be subject to competition from other firms and uncertain negotiations with the content providers.
“The point is even if the DVD-by-mail business is destined to have relatively small margins and, perhaps, to disappear completely some day , the streaming video industry is destined to have endless competition and poor negotiating positions. The best chance to gain a strong foothold in streaming is to tie it to your monopoly, not to separate it.”
True, but…three quarters is a bit of snapshot. Three years ago today Netflix was trading at $20. Two years ago today it was at $55. So though it’s currently down at $75 from an earlier $300, it’s still up when looked at over time.
Now, past performance is no guarantee, etc., but based on his past track record I’d want to see more than a few quarters of poor sailling before I decided that I wanted a new hand at the helm.
That said, the decision to separate into two companies, and to concentrate on streaming at the expense of DVDs, was a complete and utter disaster.
Netflix streaming is ultimately toast. USPS DVDs will/can be a cash cow since Blockbuster and all the mom/pop rental shops got their lunch eaten by Netflix.
The Netflix streaming model does not allow for caching so everyone watches during prime time. This traffic load strains the capability of the ISPs. It is not sustainable.
Additionally, Netflix has not invested in their own content delivery systems. At least they were using Akamai last year. Google/Amazon and soon Apple use their own infrastructure for content delivery. I think everyone will pay the same price to the content providers so he who can deliver that content most efficiently wins. I don’t think that will be Netflix.
Sock Puppet of the Great Satan
“Blockbuster passing up Netflix for $50 million ranks right up there, along with the first 21 12 publishers that turned down J.K. Rowling’s novel about a kid wizard.”
Excite’s CEO telling Vinod Khosla to Foxtrot Oscar when Khosla tried to persuade him to buy Google for under a $1 million is an even better example of CEO fail.
Perhaps if he’d had a bigger tax cut he’d have made a better decision.
The stupid seems to be infectious these days; HP bones a tablet rollout, and a software services CEO decides to dump their PC line (when the company is the #1 PC seller).
HP board then dumps that CEO, and hires a CEO who’s sole experience is running a website. And running for office.
The stupid has been infectious for a long time.
It’s the short term profit taking/next quarter mentality. It simply makes any long term ideas have less value if one’s major concern is how is the stock doing this quarter/how much cash can be raised. And as bigger companies use the stock market for their capital growth spurts they have to go along with short term thinking. The market is rigged for quick fixes and short term thinking because that feeds the casino best. It does little good for business.
Look above for the shot at NF’s stock price. Overall long term it is up. But short term NF supposedly made all that money by having the stock rise and lost it by having it fall. The company didn’t have less money, the product/service was doing fine, but to the casino it looks like a disaster. So they make a hail mary pass that falls about 95 yards short and look like fools.
Not saying they didn’t need to work on the product but there is a reason they are called hail marys. And when you make them for all the wrong reasons and bungle them it’s a stupid disaster.
while he did make a dumb decision, he also created a 4 billion dollar company from nothing. He’s probably not usually stupid, methinks.
Re streaming, I have a full queue of 500 movies. Of those 64 are available to stream while 436 are only available on DVD. Why on Earth would I want to go with Netflix for streaming only and lose access to the majority of their catalog? DVD by mail is the one place they have a complete monopoly advantage over all their rivals.