Netflix tries to ride out wave of customer anger

Steve’s breakdown: We all knew this 60% price hike was not going to go well but Netflix still thinks it’s going to be alright. We disagree and believe heads are going to roll. And that could include the ad agency.

LOS GATOS, CA: Netflix Inc.’s sterling reputation suffered a few minor dings in the past year, such as when its chief executive officer referred to Americans as “self-absorbed.”

But the Netflix brand took a big hit last week when the Los Gatos company informed its 23.5 million subscribers that some were going to have to pay 60 percent more per month to keep the same level of service they had.

That set off a firestorm of protest across Facebook, Twitter and the blogosphere. And Netflix customer service lines were clogged with even longtime subscribers, some calling to quit right then and there.

Even though financial analysts said the price increase can be justified, one marketing expert said Netflix did a poor job of explaining it and now risks causing greater damage to a brand that customers loved.

Netflix should start with an apology, said Howard Belk, co-president and CEO of the global branding firm Siegel+Gale of New York.

“There seems to be a kind of arrogance about this whole thing, a ‘take-it or leave-it’ attitude that shows they’re taking their customers and their stature for granted,” he said. “They need to backtrack and do a better job of explaining the realities of their business and their industry and why they have to do it.”

Last week, the DVD-by-mail and online video streaming company announced a major change in its subscription fee structure starting Sept. 1 for current subscribers and immediately for new ones.

Instead of paying $9.99 per month for a combination of one DVD by mail at a time and unlimited video streaming, Netflix is dividing the two services and charging $7.99 for each, which gives a cheaper option to those who only wanted DVDs.

But to maintain the DVD and streaming combination, subscribers will have to pay $15.98 per month, about $6 more than they pay now.

Negative comments:

More than 67,000 comments, mainly negative, were posted on Netflix’s Facebook page, and thousands more filled the comments section of the company’s blog to capacity. Unscientific online surveys showed that anywhere from 33 to 50 percent of subscribers said they planned to cancel their service, although the company declined to say how many have actually followed through.

Company spokesman Steve Swasey, who compared the $6 increase to the price of a latte, said the firm was not surprised by the backlash. Changes to Netflix’s website last month also generated more than 5,000 comments to the company’s blog.

“Some people don’t like change, especially when it’s affecting your price,” he said.

But the tone of comments on Facebook went beyond just price, with many feeling betrayed. One Facebook commenter compared Swasey to Marie Antoinette: “Let them drink lattes.” And there have been at least three “Downfall” parody videos on YouTube portraying Hitler as a disgruntled Netflix customer.

That feeling of “getting screwed” fueled the anger, Belk said.

Netflix customers who loved the company “thought they were in a special relationship,” Belk said. “They thought they were buddies, they were friends, and all of a sudden, they realized, oh, this is a business relationship.”

Belk’s firm, which helped financial services companies explain to longtime customers why their credit card rates were rising, has studied ways to break bad news in a good way.

“The American people can take bad news,” he said. “They just want it explained clearly and honestly and simply. Most of them will say, ‘I don’t like it, but I can deal with that and I can carry on.’ ”

Analyst Tony Wible of Janney Capital Markets agreed that the way Netflix has spun the increase “is in part hurting them.” But he noted that this wasn’t the first time Netflix suffered from a public relations stumble.

In October, when Netflix held a press event in Canada to launch its $7.99-per-month streaming-only service in that country, the Hollywood Reporter writer asked CEO Reed Hastings whether he was concerned that U.S. Netflix subscribers, who were at the time paying $8.99 for the same service, would want a discount.

“How much has it been your experience that Americans follow what happens in the world?” Hastings was quoted as saying. “It’s something we’ll monitor, but Americans are somewhat self-absorbed.”

Hastings apologized the next day for the “awkward joke” and said his “big American foot is in my mouth.”

Still, Netflix expects to hit the 1 million-subscriber mark in Canada this summer and plans a second international expansion into Latin America.

Then last month, the National Association of the Deaf filed a lawsuit against Netflix claiming the company is in violation of the federal Americans with Disabilities Act because most of the movies and TV shows available for streaming don’t have captions.

Netflix has said that about 30 percent of its “Watch Instantly” videos have captions and that the company hopes to have 80 percent captioned by the end of the year.

Petition for captions:

But Sebastian St. Troy, a hearing-impaired consumer rights activist from Texas, said Netflix has still not done enough. St. Troy’s online petition drive to push Netflix to include captioning gained more momentum last week, in part because of the publicity over the subscription fees.

Also last month, Netflix lost a significant slice of its streaming movie library because of a “temporary contract issue” between Sony Corp. and pay-TV distributor Starz. Netflix is already facing the prospect of paying markedly higher fees to renew its contract with Starz before it expires in 2012.

And to top it off, the Netflix website and streaming service went down completely for a few hours on Father’s Day.

Branding expert Belk said that despite all of that, Netflix still has a “great product” and a bank of good will built up over the years, so they probably “won’t lose an enormous number of customers.”

But that bank of “brand equity” can erode quickly with each public relations hit, and “it’s amazing how fast that can slip away from you,” he said.

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