Why Netflix Finally Listened to Its Customers

NEW YORK (MainStreet) -- After making its customers angry for the past three months, Netflix(NFLX) is finally trying to make things right.

In a terse blog post Monday, Netflix CEO Reed Hastings announced that the company would abandon its plan to spin off its DVDs-by-mail service into a separate, subsidiary company called Qwikster.

Netflix's decision to kill its misguided 'Qwikster' shows that consumer outrage can get results.

"It is clear that for many of our members two Web sites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," Hastings said in the post. He also reiterated that Netflix was done with price hikes for the time being -- which the company already made clear when it broke off negotiations with Starz rather than raise prices again.

The ill-fated Qwikster plan was launched two months after the company sparked a customer revolt with a significant price hike on consumers who wish to get both digital streaming and DVDs-by-mail. And while Hastings originally framed the Qwikster plan as a way of making things right with consumers, it was clear the company was really more interested in making a long-term strategic move by focusing its efforts on digital streaming. Under the new plan, there would have been zero integration between the two Web sites: Consumers would have had separate accounts for the two services, there would be two charges on users' credit card statements, and ratings and reviews for a given movie would not be integrated between the two sites.

"Their value proposition has always been that they provide entertainment in whatever format you want," says Shahid Khan, a former media industry consultant and now chairman of Mediamorph, a cloud computing software firm. "Which medium you consume content in should not be an issue."

In other words, by separating the services into two sites, Netflix would have removed its status as a one-stop shop for TV and movies in the format of your choice. In some ways, that diminished convenience would have been almost as bad for customers as the original price hike.

The about-face, then, demonstrates Netflix may have finally realized implementing a long-term strategy isn't as important as delivering an optimal user experience. Khan says that this consumer outrage, along with a plunging stock price and recent emergence of rivals in the form of Blockbuster -- which just hitched its service to Dish Network(DISH), and Comcast(CMCSA) -- which has hooked up with Xbox Live, was responsible for the sudden reversal.

Companies aren't always going to listen to their customers when they threaten to revolt. But it's still nice to see that widespread customer dissatisfaction can still sometimes make a difference -- at least when it threatens the bottom line.

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