Netflix's Attempt at 'Transparency' Angers Consumers, Hurts Brand

Another PR Debacle Erases Gains Made Since Last One

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The jury is still out on whether Netflix's decision to split its business into a streaming-only service and a DVD-mailing service makes strategic sense in the long run. But in the short run, the company has another PR debacle on its hands as consumers react to CEO Reed Hastings' announcement of the move in an email that started off with an apology for the company's last PR debacle.

How bad is it? According to YouGov BrandIndex, "Most of the perception gains that Netflix clawed back during the last eight weeks since the controversial mid-July pricing announcement have been lost in just one day." According to the firm, Netflix went from a 17.9 Buzz Score on Friday to a -4 on Monday. (Before the price hike was announced in July, the company's Buzz Score was 39.1.) Separately, 83% of those responding to an poll said the move would hurt the company.

A late Sunday email from Mr. Hastings to Netflix subscribers (which was also posted to the company's blog) began with the words: "I messed up. I owe you an explanation." Some consumers, it seemed, felt they were about to get an apology and, perhaps a roll back on this summer's price hikes, which had sent the company's stock down 19% and recently forced it to lower its subscription outlook.

Wrote one Ad Age commenter responding to a blog post about the announcement letter: "At first I thought there might be something in it for me, the Netflix customer. But no, all we customers get are new red envelopes sporting the new company name. Thanks for nothing."

"My first thought was rate reduction," wrote another. "After reading the email I said, 'WHAT!?'"

The only apology forthcoming was for not being clear enough about communicating the company's evolution. After which, the letter proceeded to offer a new business plan -- the introduction of the Netflix streaming and Qwikster DVD services -- which would complicate the consumer experience even more.

As is often the case with these stories, one of the first questions to come to mind among communications professionals is , "Who allowed this to happen?" PR execs often complain about taking the flak for a "bad PR move" when it's really just a disruptive business move driving public upheaval. But in this case, a questionable business move was made worse by a public announcement that only served to confuse and anger consumers who were already on the verge of bolting.

When asked about the involvement of the communications team on the CEO's recent announcement strategy, Netflix VP of corporate communications Steve Swasey told Ad Age that the leadership teams work very collaboratively. (Jonathan Friedland, the new communications lead, joined earlier this year.)

So what went wrong? One executive familiar with the company said that it seems to have neglected its impending U.S. issues as it focused on expansion in Latin America. The leadership team and just about the entire PR team has been on the road in the various regions promoting the launch.

One of the few positive things said about the announcement was in reference to Mr. Hastings' tone in the email. Wrote one Ad Age commenter: "I thought it was a nice gesture to explain in a conversational tone what had happened so matter-of -factly with a bit of humility and what I perceived as a sincere desire to be clear. That was good." But, wrote the same commenter, "My final takeaway was, why do they needed two separate company names?"

This was a common theme among industry insiders, so it may have been even more confusing for the general consumer who cares less about Netflix's reasons and more about what it means for her.

From a PR perspective, Jason Schlossberg, president and partner at the MDC shop Kwittken & Company, said, "Consumers have less interest in the business model than the customer experience and the cost. They still haven't explained how this will have any beneficial impact on the customer."

Also, the language in the letter made it seem as though the team rushed to create two businesses -- "we moved quickly into streaming" -- but Netflix's Mr. Swasey said that the decision to split the business has been in the works for years. Maybe so, but the news that the company hadn't secured the @Qwikster Twitter handle didn't help. Making things even worse was that Jason Castillo, owner of @Qwikster, was tweeting about the situation: "@Qwikster Dayum over 3120 follower just cuz some ppl wanna buy my handle 3 ppl have asked but idk who to trust."

So where to go from here? To change consumers' minds, PR executives agree that the company will need to convince consumers that at the end of the day there's value in its new approach. And it will need to do it quickly as competition looms from companies like Blockbuster, which unrolled tweets featuring #goodbyeNetflix and #helloBlockbuster hashtags and offering special deals to new customers.

"By no means is this unsolvable, but it will take time and communications and transparency," said Mr. Schlossberg. Though consumers don't seem so much interested in transparency and communications. He added, "They need to explain the rationale behind the cost increases, how to improve the service. Brands make mistakes all time and consumers forgive them."

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