By Jeff Reeves
Netflix, (NFLX +4.93%), critics have been very vocal since the Sept. 1 move that separated the former stock market darling's streaming video from DVD rentals. And it has been one wild ride for NFLX stock in recent weeks.
First, we learned that 1 million Netflix customers defected due to the changes. Then, Netflix CEO Reed Hastings stumbled through an apology and the company tactlessly revealed users would have to suffer through two websites with two billing accounts if they wanted both streaming and DVD service. The backlash was big, and shares of NFLX stock went from over $300 in July to as low as $108 per share recently.
This morning, the latest sordid storyline is that Netflix will in fact abandon its plans to separate the streaming and DVD businesses.
Yes, some may think it's a victory for the consumer. The company previously said its DVD-by-mail service would operate via a separate website, Qwikster.com, but now that plan looks to be dead in the water. Hastings released a statement that said, "Consumers value the simplicity Netflix has always offered and we respect that." Netflix shares were soaring as much as 10% in early trading today on the move.
But remember one thing: Like a B movie lab experiment that goes wrong, wreaking havoc on small-town America, this Netflix debacle is not so easily resolved by wishing it away.
Some subscribers are gone for good: Keep in mind that of the million customers lost, the lion's share came from the DVD side — from a projected 3 million to 2.2 million. If Netflix thinks it can just promise to keep the DVD rentals in-house and win them back, it has another thing coming. Many consumers complain that Netflix offers a poor library of new releases — just look at the current Top 100 movies shipped, and you'll find The Blind Side from 2009, Crash from 2005 and The Bucket List from 2007 in the top three spots. Not exactly recent hits. The fact is many mildly dissatisfied customers sometimes stick around out of laziness or complacency. Once they're gone, however, they need more than the status quo to return.
DVD business publicly revealed as disposable: Many folks had speculated that the biggest reason Netflix was going down the Qwikster road was to prepare the company for an inevitable spinoff. Hastings himself admitted that "my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming" and that "DVD by mail may not last forever." After treating your customers so carelessly and making those harsh statements (however true they might be), how can the movie-watching public ever feel like you truly care about their business — or more importantly, you will truly ever listen to future complaints?
Netflix's poor leadership exposed : When Netflix revealed a dual-pricing model to combat the rising cost of streaming, many folks thought it was no big deal. Unfortunately, the move failed to properly measure consumer dissatisfaction. Adding fuel to the fire was the tactless divulgence that Netflix was going to demand consumers suffer duplicate logins and billing for the separate services, and the resulting "apology" from its CEO that was more self-justification than anything else. Now we have the eventual back-tracking six weeks later. Who the heck is steering this ship? And more importantly, the next time Netflix has to make a crucial strategic move with its business — and it will very soon with competitors like Amazon, (AMZN +3.23%) and Apple (AAPL +3.38%), rapidly growing their streaming video businesses — how can anyone trust NFLX leadership to do the right thing? And by the way, amid this mess we learned that Netflix will lose its Starz titles in January , accounting for 8% of its total streaming library. Not very encouraging to the streaming-focused growth plans of this company.
Sorry, Netflix, but this monster has already gone on a rampage, and it's not as simple as calling him back inside. It's going to take a an army of PR workers with torches and pitchforks to tackle this beast — and many months of vigilance to ensure there isn't a sequel to this disaster and the damage is fully repaired.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook .