Why Reed Hastings is No Steve Jobs

This morning Netflix NFLX announced that it would be abandoning its plan to split up DVDs and online streaming. Back in September, Netflix announced that its DVD-by-mail service would operate at Qwikster.com, with the online streaming staying at Netflix. Customers would have had two accounts and passwords, and this made customers irate, and infuriated about the decision, with thousands of negative comments on the company blog, explaining the decision. This morning, they have reversed themselves, trying to appease the customer base. In the blog, CEO Reed Hastings wrote, "It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs." Hastings went on to say, "This means no change: one website, one account, one password… in other words, no Qwikster. We value our members, and we are committed to making Netflix the best place to get movies & TV shows." When Hastings first apologized for the split, it did appear that Netflix was trying to do the right thing, and separate the growth from the dying part of the business. Hastings duty is to shareholders, but also to keep his customer-base happy. However, Hastings catering to the customer in the first place is not the way Steve Jobs would have done this at Apple AAPL. When Jobs was alive, he made sure to continuously say that the customer does not know what they want, and it is their job to tell them what they want. Apple has never done market research, and never will. The Cupertino-based company has long said it does not go market research because you only do that when your product is less than stellar. When the iPad came out, many laughed at the name (including myself), and some thought there would never be a market for tablet computers. Look at where the iPad is now. Netflix would be wise to heed this lesson. Hastings would be wise to take a page out the Steve Jobs book of management, and not make decisions based on customer reaction, if he truly feels that it is the right thing for the business. Splitting the business may have been a good idea, but it is Hastings' job to sometimes say no to good ideas, no matter how good they seem at the time. Morgan Stanley agrees with the decision to keep the businesses together. Perhaps what is not lacking at the company is not good ideas, but rather a firm CEO who can make the tough choices to benefit customers AND shareholders. The stock may be spiking on this decision, up some 6% as of the time of this writing, so it is being seen as a positive in the short-term. However, shareholders have to ask themselves this one very important question. Who really is running the show at Netflix? ACTION ITEMS:

Bullish:
Traders who believe that Netflix has not harmed itself that much might want to consider the following trades:

• Shares of Netflix have lost almost 70% since the price hike, as well as the proposed split. Removing one of those "negatives" could prove to be a buying opportunity for shares.

Bearish:
Traders who believe that Hastings lack of management is hurting the company may consider alternate positions:

• One thing a company needs is a strong leader. Decisions that affect your company need to be thought out as to how they will affect the business, as well as the customer. To flip flop on a decision so fast does not bode well for the future of the business.
  
  

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