Netflix's third-quarter 2011 letter to shareholders

About this letter

Reed Hastings, Netflix's chief executive, and David Wells, its chief financial officer, signed this quarterly letter to shareholders dated 24 October 2011. It followed a period that the letter itself calls difficult for shareholders, employees and members, after significant price changes to the DVD service and a proposed and then cancelled rebranding of that service upset many domestic members.

The letter is part apology and part operating update. It explains what management believes went wrong and what it means for fourth-quarter revenue and profit, reports subscriber and segment figures for the quarter, and announces that Netflix will in future guide separately on its domestic streaming and DVD segments. It also describes the output deals and television agreements being signed, and confirms the planned launch in the UK and Ireland early in 2012.

What to notice

1. 1

   The letter locates the mistake precisely: not the new prices, which it still defends, but how quickly Netflix moved to them, made worse by not explaining rising streaming content costs, so many members perceived greed.

“What we misjudged was how quickly to move there.”