Posted on Monday, September 19, 2011
On the Netflix blog and in an email to customers this morning, Reed Hastings, Netflix’s chief executive, announced the separation of his company into two business, one for DVDs and another for streaming. The separation solidifies Netflix’s pricing changes of two months ago, when the company unbundled its streaming service and raised prices for customers. As Hastings describes it, the plan and pricing changes were in preparation for this structural change, and he apologized for not better communicating its rationale to customers.
Reed Hastings has been masterful in his development of Netflix, including the way he nurtured his streaming business without leaving an opening for competitors. But his handling of this episode is a misstep. His instinct to separate into two businesses has merit, but he should have taken the awful customer and investor reaction to the initial plan changes as a signal to stop, or at least wait, on the reorganization. Instead, he is rushing ahead to double down on a bad bet.