Increasing Rates: Netflix Actions Speak Louder

The writing was already on the wall, but it wasn't writing that sent the real message. Netflix doesn't want to be in the DVD shopping and shipping business anymore. If you want to hold a movie in your hands, you are better off visiting your local Redbox.

The new price increase reflects its decision. Never mind those sensational headlines that scream 60 percent increases. The new plans are pretty straightforward. People can choose unlimited streaming (no DVDs) for $7.99 a month, unlimited DVDs one at a time (no streaming), for $7.99 a month (Blu-Ray is $2 more), or both services for $15.98 a month (with a broader selection).

If you're nutty, you can have as many as four DVDs out at one time. The price for that service is $34.99 per month.

Some people are complaining, saying that they will dump the DVDs all together and Netflix will lose money. No they won't. As soon as the company can dump DVDs and Blu-Ray, the better. The entire point of the price fix is to force you to make the choice that Netflix has already made. CEO Reed Hastings has said it.

"We are now primarily a streaming video company," Hastings said.

Initially, Netflix investors couldn't be more thrilled (although some started selling as customers pushed back). They had every reason to be thrilled, because unless you cancel the service, there is a plan. And the plan looks pretty great on paper. In fact, there are more changes that Netflix is looking at, including scrubbing the household model customers are used to and moving everything to an individual member basis.

"When our focus was primarily DVD rental, we talked about our opportunity in terms of households, in particular the number of households with broadband access, which is more than 70 million households. Another way to view our potential opportunity is to consider the number of households that subscribe to home entertainment, which includes cable and satellite subscribers, a market estimated at about $68 billion in annual revenue. In either case, we were describing a very big potential market, giving us a lot of room to grow.

More recently, as streaming has become central to our business, we believe there may be an opportunity to change our focus from a household relationship to an individual relationship, since streaming is viewed on personal devices, such as phones, tablets, and laptops, as well as on shared large screen televisions. As we think about this long-term shift from a household to a personal relationship, we are starting to think internally that our opportunity could be viewed as the number of mobile phone subscribers, a group that both invests in electronic content and can afford $7.99 for home entertainment. Needless to say, that is a large opportunity.

The evolution toward individual memberships will take time, and we are still thinking about how to best do it. One option could be to allow an account to add additional concurrent streams (using the analogy of our DVD business, it would be like choosing a higher-priced plan that allows a subscriber to have more DVDs at home). Or it could be that there is a price point that would encourage multiple accounts in one household. In either case, our long-term goal is to evolve the Netflix service so that it feels more natural to have a personal account. We will also be working on broader Facebook integration which we hope will further the notion of personal accounts." — Netflix, July 14, 2011

Every communication counts when choosing a service provider.

Personally, this is one of the fundamental flaws with most media "rental" agreements. The companies in charge are empowered to rescind their contracts, raise rates, and change services any time they want. This extends to not only Netflix services but cable and satellite companies too.

But where Netflix really stands out is in its blatant mission to not only increase its rates today, but tomorrow too. It has been sharing this news with investors for some time; customers not so much. The Investor FAQ says it all. They want to manipulate customers into streaming only and then divide their accounts among individuals inside the household.

More than likely, customers will do it too. Sure, there will be some grumbling, but entertainment addiction is alive and well. Most of us gave up free broadcast for upwards of $100 or even $200 a month services (plus mobile) and we still purchase DVDs or their digital equivalent anyway.

At the moment, Netflix is hoping you won't notice the above graphs and it expects the colorful commentary to die down. Maybe it will. Maybe it won't. Personally, I'm split. But then again, I'm not a Netflix customer.

Don't get me wrong. The communication was rotten. Netflix could have phased it in much like it plans to phase in personal accounts over household accounts, making it so people don't notice so much and "feel more natural." But at the same time, the only recourse Netflix customers have (short of organizing with stated objectives) is to dump the service en masse.

I don't think they will. I think most will do exactly what Netflix wants. Netflix wants to get out of the mailing business, which costs considerably more than its streaming arrangement. So, if you dump mail, you're not really protesting at all — you're doing Netflix a favor. That favor isn't nearly as big as the favor you will do when everybody in your home wants an individual account, but this is clearly the first step to make it happen.

It's a plan that is, very literally, worth billions for a company that suddenly makes people reminisce about Blockbuster. But for communication pros, the real lesson goes back to not mixing your investor and customer messages. Everything is public nowadays.

Peddling Fear: Royal Spring Water

There are several ways to effectively market an IPO, but distress direct mail marketing with multiple messages from a mysterious third-party publisher is not one of them.

Of course, that did not stop Texas-based Royal Spring Water from giving it a go last week. A "special report" published under the banner of American Water Stocks, but devoid of contact information, claims two billion people will soon be in dire need of drinking water and that is why you should bank on a water stock with potential gains of 220 percent. As a communication observation, I can only guess
that Royal Spring Water is gambling on the idea that even a faceless smoke-and-mirrors endorser (but disclaimed as a paid non-endorser) can generate capital to offset operating losses.

Sure, this bottler and distributor of pure water from the Artesian wells of the "Ogallala Aquifer" has added a warehouse and distribution center in Los Angeles in order to meet sales demands in the state of California. It has reportedly concluded a private label deal with Vista Ford dealerships and Pacific Athletic Club, both in California, among others. And, its pitch that it has an exclusive "structured water" formula, sold under the label "RHYTHM Structured H2O — A life Changing Experience" sounds interesting enough.

Yet, this is precisely why one has to wonder about a company that would gamble with its reputation and possibly garner legal consequences by spending $20,000 with American Water Stocks in a mailer that comes dangerously close to crossing the stock "solicitation" line. (Right. For $20,000, you too could see your company projection to be "overperform" if you don't mind the half-page disclaimer underneath that refutes its own claim, assuming you can find the ghost of a company that did the piece.)

The reason why aside, the multiple messages mangle any sense of logic. The opening message to "forward-thinking investors" reads:

"Forget about oil shortages, flu pandemics, and terrorist attacks. The world is on the verge of a crisis that's unprecedented in human history. Because when water becomes scarce, nothing else matters.

What I'm about to tell you in this special investor report may shock you, sadden you, and even make you a bit angry. But I feel it's my duty to let you know how the world's most precious natural resource is in serious danger of depletion.

I'll also show you how the demand for clean, safe water is exploding around the world, and I'll name a company that's gearing up to supply this growing demand—and which could potentially make its early investors very wealthy as it grabs a share of the $420 billion market for freshwater."

The mysterious "I" person is never named, but goes on to fulfill his or her promise that 12 pages of fear marketing can indeed shock, sadden, and even make people feel angry. Unfortunately, not for the reasons they hope.

You see, it's no surprise to me that the executive management team of Royal Spring Water got their start as independent film producers of movies that didn't go anywhere (one was about how a transcriptor struggles to keep up with the rapidly changing technology around her. Oh my!). Today's equally compelling plot line links the end-of-the-world water to unbelievable stock gains. Simply put, it is investor prospecting communication at its very worst.

Look, there is no refuting clean drinking water is an issue worth consideration or that the bottled water industry is booming (Aquafina, Dasani, Arrowhead, and others all posted gains last year), but this hardly doubles as an excuse to misrepresent paid advertising as a special report from a third-party source. And personally, I would be disappointed to see more of it.

Lessons for today: First, never risk your company's reputation for a get-rich-quick stock scheme, especially when you seem to have a markable product. Second, never assume in today's world that your targeted mailer will only be seen by unsavvy investors willing to gamble on your hype. One of them just may be a member of the social media with an eye out for communication. Good. Bad. Or indifferent.