After a tumultuous year for Netflix, long-time Chief Marketing Officer Leslie Kilgore will be stepping down from her role with the company. In her place, Netflix has named Jessie Becker as its interim Chief Marketing Officer and appointed Jonathan Friedland as the company’s Chief Communications Officer.

Kilgore had been Netflix’s marketing chief for 12 years, but the company suffered a number of setbacks in 2011. They began with an announced price hike that angered many customers as the company raised prices for joint DVD-and-streaming subscribers by as much as 60 percent. But the bad news kept coming, as Netflix came forward with plans to separate those services and spin out its DVD-by-mail business as a standalone service called Qwikster that never actually launched. Along with the news that Netflix would not be re-upping its Starz streaming deal in 2012, caused many subscribers to reconsider whether they wanted to stick with the company.

While Netflix might have moved too quickly to separate streaming from its DVD business, the real issue is that the company mismanaged communications with its customer base, which up until recently had been pretty loyal to the company. For years, Netflix was named among the top companies in terms of consumer satisfaction, but a number of stumbles in a short period of time caused the company to lose subscriber and investor support.

Netflix lost 800,000 subscribers in the third quarter, and its stock has fallen from more than 0 a share to as low as over the past six months. While it’s been trading up recently — and has stabilized around 0 a share — it’s still a long way back to where things stood in the early part of last summer.

As a result, a shakeup in marketing and communications shouldn’t be too surprising: After all, Netflix doesn’t just depend on advertising to get people on board. It depends on positive word of mouth from its subscribers to start growing its domestic membership again.

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Poor Netflix has had a rocky six months.  It’s like having a friend go into complete, total meltdown and trying to decide when you should start planning the intervention.

After Netflix announced it was splitting its streaming and DVD delivery services into two separate companies, they made a complete 180-degree turn and combined the services again.

Just this week, Netflix announced their Q3 earnings, and while they met expectations, they lost 800,000 subscribers. Now the market is punishing them. In after-hours trading just after the announcement, they lost nearly 30 percent of their stock value. In opening trading the next morning, they were down another 10 percent. While all that loss may not have been avoidable, the industry is wondering why Netflix decided to make this move so quickly.

Colin Dixon of The Diffusion Group (TDG) succinctly referred to this whole event as “premature bifurcation.” And he’s right – many of us within the industry may have seen this split as inevitable, but the timing and the way Netflix has handled this announcement hints at a larger, more complex situation.

Why break up with yourself?

Why would Netflix choose to split itself apart?  And why completely change the name and make two different services to interact with their company?

It all started with the Starz negotiations: Netflix landed a great deal with Starz in 2008. For only million, Starz gave Netflix access to some pretty good movies to stream because the perceived value of streaming was very low at the time.

Fast-forward to 2011. Netflix is now available on so many devices and touting the largest subscriber numbers for a MSO, so the perceived value of that license goes up quite a bit. This makes it a lot harder for Netflix to negotiate cheap prices; hence the very public break up this summer.

So, how does Netflix improve its bargaining position? Oddly enough, by weakening themselves (or at least appearing to be weaker), they position themselves to negotiate for a better price. Let me explain: by splitting the two entities apart, they show much lower subscriber numbers to potential licensees as reasoning for lower pricing. By still having the two companies under one roof, Netflix gets to play the beggar during negotiations for streaming in regards to subscriber numbers, while still offering combined DVD & streaming licenses as an incentive. Therefore, a “weaker” Netflix might have been stronger from a negotiation standpoint.

The problem is, they couldn’t come out and just say that, so instead we get the standard Netflix hubris, disingenuous apologies, and some new branding.  And ironically, now Netflix is much weaker than it planned.

Experience teaches at the cost of mistakes

Despite all the missteps, I still would like to see them succeed. Netflix may be down, but they definitely aren’t out of the game.  Let’s face it, they still have the largest online subscriber base for video content, they have announced rollout plans in new markets, and have recently announced some great new content deals.

Unfortunately, the industry is still learning what customers do and don’t want. Netflix is our canary in the coal mine as they find new and exciting ways to create a burgeoning business model while pissing off content makers and alienating their own customers in the process.

If Netflix doesn’t rebuild itself soon, then maybe it is time for that intervention. And if this WSJ article is correct, that intervention could come in the form of takeover interest. Either way, to regain subscribers and prove the streaming business case, Netflix needs to get back to signing content deals.

Andy Beach is Vice President of Marketing and Product Development at SeaWell Networks, a Canada-based company that specializes in online streaming video delivery. 

Image courtesy of Flickr user jcoterhals.

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What Netflix and its competitors become now will determine the future of how we watch video for years to come.

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