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A Netflix Story

A Netflix Story A Netflix Story A Netflix Story A Netflix Story
10/1/12
1/4
The gun goes off
Like any Hollywood starlet gone wrong, Internet DVD-and-streaming company Netflix’s fall from grace was steep and dramatic, a train wreck movie-loving spectators couldn’t help but watch in indignant fascination. The missteps came quickly, one after the other, in the summer of 2011: Netflix announced, abruptly and via blog, a new – and, for most subscribers, more expensive – pricing structure; premium pay TV service Starz decided not to renew its contract with Netflix; and CEO Reed Hastings posted a Youtube video casually announcing the split of Netflix into two entities – one offering DVD by mail services, Qwikster, and one offering online streaming services, Netflix.

Many customers saw Netflix-red, taking to social media sites to give “Greed” Hastings the proverbial finger. Others latched onto the comic absurdity of this turn of events and created their own parodies and punch-lines. Formerly one of Oprah’s “2010 Favorite Things” and Wall Street’s golden child, Netflix was now hemorrhaging subscribers – 800,000 over a four-month period — content and equity, in both financial and brand terms, with stock price dropping 77% in four months, Relevance declining by 25% from the first to the last quarter of 2011 and Differentiation slipping by 5% in the same time frame.

The end of the beginning? Or the beginning of the end?
In the last quarter of 2011, Netflix shifted into damage control. It killed Qwikster; ousted several top managers; refocused its efforts on beefing up its content with new entertainment partnerships and forays into original programming; and maintained a better price than competitors like Amazon, HBO and Hulu. Its crisis management efforts were an immediate Band-Aid over the wound. In the last quarter of 2011 and the first quarter of 2012, Netflix reported growth in subscribers and revenues.

But will the company go beyond a superficial, temporary repair of damage? History says Netflix can do it: In 2006, it experienced a similarly large drop in Brand Strength as the video content category continued to evolve, with brands like iTunes and YouTube fast gaining popularity. By acting quickly and boldly adapting a new business model that offered internet streaming, Netflix emerged from the rubble better than ever in the following years.

The most recent BAV data also says Netflix can do it. In the second quarter of 2012, Netflix reversed its previous slide in Differentiation, an improvement of 7% from its lowest point in 2012Q1, and continued to rebuild Relevance, gaining nearly 20% since its lowest point in 2011Q4. These are leading indications that the brand is picking up momentum and regaining its growth potential. Additionally, Netflix rebounded – and in some cases, surpassed pre-crisis levels – on emotional imagery attributes related to customer-centricity (including Simple, Obliging, Authentic and Down to Earth) and vision (Progressive, Visionary and Up to Date).

However, Netflix faces many challenges: increasing competitive threats like Amazon’s free instant streaming service for Prime subscribers, high international expansion costs, and a still-amorphous vision of the future of video, on top of its executive sins. It must stand strong against these obstacles, and continue to innovate and enrich its offerings, if it wants to become the next comeback kid – again.

By Sophie Chen

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