I've been at odds for a while over a rule in pro football (in the US, that's grid football) that allows a coach to challenge a ruling made on the field. In the heat of the moment, a ref makes a call based on the best information he has at the time. Technology -- and, I would imagine, money -- has since made it possible for refs to review the play and reverse their calls. Such rulings have changed the outcome of the game.
I think it is a little less than sporting to allow a do-over. It's the variables, including human error, that make sports interesting. But I'm pretty sure I'm in the minority on this issue.
Netflix Inc. (Nasdaq: NFLX) today has done a business do-over. The digital media provider -- which sparked an outcry when it doubled its prices earlier this year -- has reversed its plans to split its streaming video business from its DVD-by-mail unit. (See: The 'Whoops' Business Strategy in the Supply Chain.) For those of you keeping score, it's a reversal of a reversal.
Here's the replay: In July, Netflix doubled its prices -- from about $4 per month to $8 per month -- without telling subscribers why. A month later, the company finally explained the move -- it was going to split its streaming video business off from its DVD-by-mail business. Although Netflix didn't specifically say so, the subscription hike would presumably finance the execution of this plan. Today, however, Netflix announced it was dropping the plan entirely.
Where does this leave Netflix subscribers? They are still paying the higher fee, without the benefit of an improved business model. In football parlance, subscribers have been penalized for a bad call on the field.
Not surprisingly, Netflix's stock dropped -- again -- on the announcement. Last Friday, according to the Wall Street Journal, the stock closed 62 percent down from an all-time high in July.
I understand that CEOs, like sports referees, are human and therefore fallible. They make mistakes. And often, they pay for their mistakes by losing their jobs. Case-in-point: Hewlett-Packard Co. (NYSE: HPQ), which, like Netflix, made a surprising announcement a few months ago. HP is considering spinning off its PC business. The CEO who made that announcement, Leo Apotheker, is no longer there. (See: Dancing on HP's Grave? Not Yet and HP's Board Adds to Its Errors With Whitman Appointment.)
HP hasn't changed its plan -- yet. The one thing HP has done correctly in the past few months is that it didn't commit to a spin-off: the company said it was considering one. (See: Bumbling HP Strikes Again.) Netflix, on the other hand, made its move before explaining the reason why, and then changed its mind.
I've never been a Netflix subscriber, but if I were, I would have cancelled my subscription the minute prices were doubled. It's not that $8 per month is a lot to pay for unlimited programming -- I pay at least that much for various cable services. It's the lack of a valid business explanation that gets me.
Most people understand that it costs money to restructure a business. Netflix subscribers might have swallowed the rate hike if they had known the company's plans, which were not explained upfront. But the point is moot, anyway, now that the company is not splitting its business. Netflix is back to square one without anything to show for it, except a bunch of angry subscribers.
I find it amazing that Netflix has any subscribers left at all, but does the company deserve another do-over? If so, how many do-overs should a company get before customers and shareholders abandon it completely?