• by Erik Sass , Staff Writer, September 23, 2011

Back in July, I wrote about the surge of social media criticism directed at Netflix after its controversial price hike, which raised the cost of its main subscription plan by 60%, noting that it was "a great case study illustrating both the potential and limitations of social media as a tool for interacting with, and attempting to shape or at least placate, public opinion."  The big question, I wrote, was "how does Netflix handle the social media explosion?"

But I never would have expected the novel, unorthodox strategy adopted by Netflix to engage with social media critics: basically, it just didn't. Rather than respond to the outpouring of customer dissatisfaction, Netflix ignored the abuse and never tried to explain why the price hike was necessary and why it was still worth holding on to their subscriptions -- elementary questions, for which there should have been persuasive answers (presumably you don't piss off your customers that much without some bigger goal in mind, hopefully one that will benefit them too in the long term).

This neglect is all the more puzzling, in hindsight, because it turns out there was a long-term plan, which Netflix CEO Reed Hastings just revealed: Netflix created a new business with its own brand to handle DVD mailing, called Qwikster, and associated the Netflix brand exclusively with the streaming on-demand side of the business.

To his credit, Hastings tried to undo some of the damage to the company's reputation by accepting responsibility for failing to clarify what the company's plan was in the first place, admitting that the unexplained price hike was a high-handed move resulting from "arrogance"; Hastings also sketched out the reasons for the move -- mainly Netflix wanting to stay ahead of the ball as more viewing switches to online streaming.

But these humble genuflections were comical, and indeed even more high-handed and arrogant, coming as they did a good two months after the initial controversy. The appropriate time to offer these explanations was immediately after the initial wave of criticism -- not several months later, during which negative impressions of the company can become entrenched in consumers' minds. No surprise, the company paid a price for this, with some subscribers canceling their service, future subscriber projections lowered, and the stock price taking a hit to boot.

The whole thing is frankly mystifying to me: how could a major, publicly-traded (and generally popular) company go about its social media communications -- and indeed its broader business strategy -- in such an incredibly inept, half-assed fashion?

And don't even get me started on stoner Elmo.