Netflix and the Art of CEO Apologies: The Ticker

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By George Anders

It's rare for any boss to issue as comprehensive an apology for business missteps as Netflix Chief Executive Officer Reed Hastings did today. Given the bitter reaction from Netflix customers and investors, it's unlikely that other corporate chiefs will be following Hastings' example  anytime soon.

Until a few months ago, it didn't seem that Netflix needed to apologize for anything. The DVD-rental and video-streaming company was a huge hit. Earlier this year, its stock traded over $300 a share. Hastings was seen as a high-tech visionary, able to launch a business using the 20th century technology of DVDs, and then gradually migrate it into the faster, cheaper, easier world of video streaming.

Then Netflix veered off course this summer when it raised prices as much as 60 percent, while signaling that it wanted to speed up the migration to movie streaming. In a mass email Sunday night to customers, Hastings repeatedly lamented the way Netflix communicated its new strategy ("I messed up"), while defending the company's new objectives.

His reward from investors: a drop of more than 7 percent in Netflix's stock price, to $143.75. Customers were even more furious. Netflix's blog is packed full of angry comments from customers, who are particularly unhappy with the company's decision to split its DVD service from the rest of the company.  The rental business will be renamed Qwikster and will issue separate bills.

History suggests that CEOs making broad apologies -- without being able to change much -- don't fare well. In 2000, Jacques Nasser said he was sorry for accidents involving Ford Motor Co. trucks and Firestone tires. A little more than a year later, he was gone. Airline CEOs have endured similar fates after apologizing for epidemics of flight delays and route snarls.

When apologies do help companies win reprieves, it is usually because they are accompanied by decisive action that makes the problem go away. Coca-Cola Co., for example, fared better after getting rid of New Coke.

In Netflix's case, Hastings is sticking with his pro-streaming strategy. He may well be right about the future of in-home movie watching -- even though he blundered in gauging how fast the switch will happen. Venture capitalist Bill Gurley thinks the Qwikster separation could strengthen Netflix's hand.

But with Netflix's customer revolt, falling stock price and hurried contrition, it's looking less certain that Hastings' company will dominate the video-streaming future. Advice to CEOs: stay closer to your customers. If you know what they want and why they are buying your wares, there will be a lot less need for apologies.

(George Anders is a member of the Bloomberg View editorial board.)

-0- Sep/19/2011 21:06 GMT