Netflix CEO Reed Hastings needs to tell all his detractors and the fair-weather fans bailing on his stock to read a book. More specifically, they should check out a paper by Jakob Nielsen in which he postulates the exponential growth of internet bandwidth every two years. Nielsen's Law claims the speed with which we can download Internet content (let’s just say a movie from Netflix) doubles every 21 months – and Nielsen has been right about this growth since 1984.
This means, if you are currently bored with your ability to grab content from the web at 25 Mbps, just wait until 2020 when your residential connection to the interweb is 800 Mbps.
Couple these increases with the annual exponential growth, both in capability and availability, of media consumption gadgets (Google Moore’s Law if you really must know) and you have the perfect environment for a wildly successful streaming business at Netflix – in the future!
That’s the problem. Netflix focused too much on the future, and forgot about the present. It bit the hands that fed it. Nearly half of its subscriber base still wants DVD’s by mail, and Qwickster was a slap in the face to those customers. As a FoxNews.com poll showed earlier this week, streaming is coming on strong, but among responders to a web-based poll, 45% said they still want DVD’s.
So how does one of the coolest companies around fix the present without sacrificing its cash flow and its focus on the future?
Step 1 – Change the Conversation
o Netflix needs to quickly get new advertising and PR in market. Right now, the press is dominating the very public discussion of Netflix’s rapid devaluation and potential demise.
o They need a campaign that reminds people of why they loved Netflix in the first place – Grade A content and the ease of at-home delivery.
o In addition, they need to take back Hastings’ image. As the public face of Netflix, he is just as tarnished, if not more so, than the brand. In a year defined by hostility towards CEO’s and corporate greed, a leader like Hastings is a breath of fresh air. He’s grounded and celebrates his employees. But that hasn’t been the story.
Step 2 – Cop an Attitude with Wall St.
o Traders punished Netflix for focusing more on the future (streaming video) than the present (DVD’s by mail). The Netflix rate increase and rise and demise of Qwikster both failed because they were too far-sighted. Netflix wanted to move into a future for which its customers just weren’t ready.
o As NFLX shares shed more than 30% of their value last week, investors seem to have missed the excellent Q3 earnings report that demonstrated the company’s ability to boost revenue even while getting smacked with an 805,000 customer defection.
o Investors instead focused on the lowered Q4 guidance.
o Netflix needs to remind Wall St. that focusing on the future rather than the present can cause undesirable consequences.
Step 3 – Get Them Back!
o 805,000 customers did not want to leave – you scared them away. Fix It!
o Go back to each of the customers that left and apologize.
o Give them an incentive to return, and make it worth their while.
o Reward the loyalty of the customers that stayed. These people clearly like you – let them help you by turning them into your new social PR machine.
Netflix didn’t deserve the beating it took in the market and in the press this past week. They are a company with amazing ideas for the future of media consumption; they just got a little bit too caught up in that future. In doing so, they broke the cardinal rule. They told customers what they WILL want instead of responding to what they DO want.
Hopefully, they can fix the issue and fix it quickly. We need Netflix. We need companies like Netflix that have a vision of just how amazing the future of technology can be. And if the exponential growth predicted by Nielsen and Moore remains accurate, just wait and see what the imagination of a smart, future driven company, like Netflix, has to offer us in 2020.