No one will ever confuse Netflix CEO Reed Hastings with someone who gives a hoot about working Americans again, or with an intelligent executive for that matter, after his arrogant comments during a July 25 conference call with analysts.
This is the same guy that just hiked prices 60% for a service many working families have been leaning on heavily to avoid the ridiculous prices for cable TV’s premium movie channels. He described himself as both “feeling great” and “very pleased” when asked about the hike, which is really more along the lines of gouging than a legitimate increase needed to cover costs.
Hastings made it clear during the call that he could care less about those families, even amid the hardest economic times in more than 70 years. He sought to portray himself as a chief executive whose focus is pleasing investors by fulfilling his fiduciary duty to maximize shareholder value.
Sadly, Hastings’ isn’t even doing that any more.
Netflix shares have fallen 11% to $266.91 since the hike was announced July 12. They closed at $298.73 on the first full trading day after Hastings’ crack management team disclosed the hike in an opaque press release entitled “Netflix to Offer new Unlimited DVD Plans and Will Separate Streaming and DVD Plans in the U.S.”
Holy transparency Batman, I wonder what that press release is about? Clearly, a reasonable person could tell it contained news that working Americans were going to be gouged with a 60% price hike.
Netflix has lowered its earnings expectations for the current quarter to between 72 cents and $1.07 cents a share. Analysts expected $1.09 a share. The reduction is due to the number of subscribers lost to the price change.
Hastings is quickly defining himself as an arrogant smartass who thinks working Americans are as dumb as a bag of hammers. And the truth is that sometimes we are. That’s why we’re constantly looking for companies like Southwest and Wal-Mart that refuse to indulge in the opportunity to exploit us.
Once upon a time that list included Netflix, which allowed consumers to avoid the insulting late fees and rewind fees the Blockbuster video rental chain was saddling us with prior to its 2010 bankruptcy.
Curiously, Hastings thinks the same dumbass working Americans are smart enough to do the math and figure out that Netflix is still a great value, which is true. Netflix remains a relative value in comparison to cable.
However, there are two problems with Hasting’s simplistic application of Gordon Gecko’s “greed is good” managerial mantra. First, Netflix is a supplement to cable. It’s not a substitute.
That means it’s a lot easier for people to walk away from Netflix than a cable provider like Comcast or Time Warner. There isn’t a lot of competition in most local cable markets and none of the companies are easy to deal with. So, a customer can literally go weeks without TV and Internet after tossing their cable provider to the curb.
Not so with Netflix.
Its a luxury for people who are struggling to pay their bills. A luxury that just went up in price by 60 friggin percent.
Here’s problem No. 2. Hastings assumes that working people see everything in dollars and cents – just like he does. It’s a common affliction among bean counters.
If Hastings had a better connection with his customers, he’d know that working Americans do not see everything in terms of dollars and cents. We’re still big on the concepts of honor, integrity and fair dealing.
For working people, the way a service treats them is just as important as cost. And when we can punish a disrespectful operation by hitting them over the head with our billfolds that’s exactly what we do. It makes us feel good.
It’s a safe bet that Hastings and Netflix are getting smacked over the head by a lot of working class wallets right now. Cause the one question he skirted during the conference call was how many people have cancelled their Netfllix subscriptions since the price hike was announced.
It’s likely the number is prohibitive. How do I know? Because a salesman like Hastings would be talking about the number if it were favorable.
Even analysts are beginning to worry about Hatsings’ high-handed ways. Tony Wible, an analyst at Janney Montgomery Scott, said in a research note that he was “troubled” by Netflix’s “limited disclosures.”
The bottom line is that there’s a lot more to being a successful CEO than being greedy. Especially when we’re talking about naked greed by a retail firm that serves people of modest means. That’s something all CEOs need to keep in mind when they’re trying to fulfill their fiduciary duty.
Wal-Mart is the class of the retail sector when it comes to serving working American families. It doesn’t depend on higher prices to increase shareholder value. Instead, it grows profits by cutting costs and building new stores in new markets.
As for Hastings, well it’s a safe bet that working Americans are going to have his butt in the woodshed for a good while to come. He can expect another tanning when the new rates actually kick in this September.
Or, the Netflix board can embrace their fiduciary duty in deed as well as word by admitting they screwed up, replacing Hastings and ratcheting back this insulting rate hike.
This epic debacle is a sad come down for Hastings, who made the cover of Fortune Magazine just last year as the 2010 businessman of the year.
His crime? It’s not really the 60% price hike or the duplicitous way he tried to roll it out. Hastings’ crime may ultimately be that he believed his own press clippings, so much so that he betrayed the fundamentals of his own business model and its implied promise that Netflix would not exploit working families.
We’re talking about the elegant Netflix business model that helped consumers bring Blockbuster to its knees by treating them with respect and doing away with the predatory late fees and rewind fees we were being nickel and dimed with. The same business model that lifted Netflix share prices from the $40s to the $200s.
Yet somehow, some way, the genius that is Reed Hastings decided he could nickel and dime us without consequence.
Hey Reed, are you really that stupid or have you just surrounded yourself with so many lackeys that the Netflix board room is now little more than an echo chamber for your fears and aspirations?
Don’t even bother crafting a response to that question Reed. We already know the answer.
Transcript available here: http://www.123jump.com/earnings-calls/Netflix-Q2-Earnings-Call-Transcript/45234/21