Netflix Death Watch

As entertainment media delivery makes its slow march from physical distribution to online distribution Netflix (NFLX) has appeared to counter and even prosper in what would appear to be a gloomy business, that being the physical delivery of media. Netflix has over 8 million subscribers, increasing earnings, and the stock has gone from $20 to $34 in recent months, bucking the trend of the overall market. It basically is driving Blockbuster out of business.

So why my "Netflix Death Watch?" Two words: customer service.

I was on a conference panel recently with Lex Fenwick, CEO of Bloomberg. Someone from the audience asked him what type of business he would classify Bloomberg as. You would expect he would answer "news" or "content" or "media" or any assorted 2.0 buzzword. Instead he answered "We are in the customer service business."

I called Netflix recently to ask a question about my account and was connected to an indifferent and aggressive customer service rep. I figured it was an anomaly and called back. The next rep was also arrogant and rude, for no discernible reason. I called again, because now I was curious. Same result. I promptly cancelled my account, because life's too short and I watch too much TV anyway.

Customer service can be a leading indicator, despite what a company's stock says. Remember when Dell's customer service reps started getting uppity? That's about the time the stock topped. Tried Microsoft customer service lately, or Delta, Best Buy, Home Depot or AOL? Do you notice a common denominator? These once high flying stocks are now in the doldrums, their descent strangely correlated with a decline in customer service. Contrast this with Toyota, Southwest, GE or Apple.

In talks I give to business groups about Wal-Mart, I often point out that one of the only companies ever to beat Wal-Mart toe to toe was Netflix. A couple of years ago, Wal-Mart decided to enter the DVD rental-by-mail business and people assumed Netflix was doomed, given Wal-Mart's ability to scale its I.T. and distribution assets into new businesses, such as groceries or now health care. Wal-Mart had the added advantage of being the largest single DVD merchant in America. A year after Wal-Mart entered the DVD rental business, it threw in the towel and referred their customers to Netflix. I believe Netflix did this at the time through excellent customer service, which Wal-Mart is not famous for.

Netflix is now facing another challenge with the advent of a rehabbed Apple TV, Amazon Unbox, Xbox movie rentals and Playstation 3 rentals. Comcast is dead serious about radically expending their VOD library. Netflix is making some inroads in the digital delivery business, and there is a reason CEO Reed Hastings is now on Microsoft's board. But from personal experience and other anecdotal evidence I've seen, Netflix may be tossing away its most valuable asset, the one that allowed it to prevail against the world's largest retailer.

Note to Reed Hastings, call Lex Fenwick.

Follow Ron Galloway on Twitter: www.twitter.com/rongalloway

Comments

[Sundialsvc4]

Ron, I do rather agree that in this post you've been rather hard on Netflix. They obviously know that plastic is on its way out but not yet out, and they're trying to ride the crest of the wave of that transition ... a move that will necessarily have them riding two surfboards at once for a while. But they're working the branding angle well enough, getting the word out, you know, really doing a lot of things right. They don't have the purely techno-power of Apple-TV, it is true, but they're also trying to take a more centric position ... to catch and ride both waves as one moves toward the crest and the other moves toward the trough. Have they truly missed the mark as crushingly as you imply? Is it =really= "death watch" time? I'm just not sure I agree with you on that. Let's definitely make sure they know to fix their customer service, if it's broken, but let's not dig a hole in the back yard quite yet.

[DBS1977]

I've been a Netflix member for almost five years now, and never had to contact their customer service. I think that speaks volumes more than the behavior of their CS reps.

I'd be curious to know the nature of the question that you were so intent on being answered, and so would some of the bloggers on Hackingnetflix.com. This post has been the subject of a lengthy discussion.

[thegreatgiginthesky]

I tried their service for 3 months and cancelled because you could never get a new release. Usually had to wait for months before you got a movie. Not worth it at all. The fact that they have a policy of people being able to keep the movies indefenitely is also a sucky policy.

[seamusnh]

I've had Netflix, Walmart and Blockbuster. I have Blockbuster now. Same deal as Netflix but they add in two free rentals per month from the store. Nice example of the power of click and mortar..

[Phaedrusnyc]

Yes, also the power of the religious right, since they don't have the number of foreign, unrated, and NC-17 films that Netflix has (and have also been caught editing certain films to their taste.) I will NEVER do Blockbuster again- bad, unknowledgeable customer service, to boot.

[Sundialsvc4]

I don't want to see a plastic disk ever again. I want to punch a few buttons, and a movie appears that I can rent, watch a few times, forget about. (I have no four-year-olds who want to watch "Barney" re-runs twenty times a day.) And if I do happen to really-love a movie, I pay a little more and poof, it's permanent. Same model as always, but no stinkin' plastic.

[larry278]

This may be the reason that I don't get spam from Netflix every day.

[aigeanta]

I stopped my netflix account after they decided to stop shipping porn.

[Phaedrusnyc]

I joined Netflix at the very beginning, and Netflix has NEVER offered porn, so you're clearly a troll.

[jvarga]

If comcast could do something like charge a flat fee ($15?) per month for unlimited VOD I'd be all over it in an instant. However, I already pay them ~$150 per month, hell if I'm gonna pay them for individual movie rentals.