Customer service reps are telling callers that a day before unveiling a price hike, managers told them to expect some angry calls. A Wall Street analyst has accused Netflix of being unprepared for backlash. 
 
 (Credit: Netflix) 
 
 Netflix managers knew some customers would be unhappy with the company's decision to raise prices, and a day before announcing the fee increase they told customer-service personnel to be prepared for angry callers. 
 
 Some of Netflix's customer-service representatives told subscribers today that they added extra employees in the department to help handle the flood of calls, many of them emotional, the employees said. Hundreds of Netflix employees were answering phones today and that still wasn't enough to prevent some callers from experiencing extended delays before speaking to a Netflix employee, the reps told customers. 
 
 
 
 
 
 Starting in September, the company will no longer offer users the ability to access both streaming video and by-mail DVDs for $9.99 a month. Netflix said Tuesday that it was splitting each distribution mode into two separate subscription plans, each costing $7.99 per month. To receive both, subscribers must pay $15.98. The announcement saw the company's blog fill up with 4,000 responses, most of them negative. Over the past couple days, there was speculation that Netflix didn't anticipate how the price increase would anger some customers. 
 
 Netflix spokesman Steve Swasey confirmed that Netflix had indeed prepared employees to receive a certain amount of calls from those unhappy with the hike. Swasey said Netflix did not go into this with its eyes closed. 
 
 "We tested, we researched, we analyzed," Swasey told CNET this evening. "We knew what the reaction would be. We are not surprised. We knew that there would be some people upset by the service and with the price being adjusted." 
 
 Rich Greenfield, a Wall Street analyst with BTIG Research, conducted a test of how Netflix's customer service department was handling calls following the announcement. In a report issued today, Greenfield said he learned Netflix was being overwhelmed by calls. He said BTIG made 35 calls over two hours and waited on hold typically between 9 minutes and 15 minutes. 
 
 Greenfield also said he was unhappy with the response from Netflix employees. He wrote that they suggest to those who threaten to cancel their subscription that they should wait until September, when the plan is due to take effect. 
 
 "There was simply no promo or 'save' technique to offer us a discount to retain our business," Greenfield wrote. "This would appear to illustrate that Netflix is simply not concerned with the prospect of losing customers." 
 
 I called Netflix's customer-service number this evening. I waited 9 minutes on hold and was greeted by a male employee who was polite. The Netflix employee said that he was instructed not to rush anybody off the phone and to hear people out--their complaints or suggestions--and to process cancellations if that was what they wanted. He acknowledged that there were a lot of extra people working the phones and that there seemed to be a lot more callers than reps. 
 
 What everybody wants to know is, are the scores of complaints to the company and those being posted around the Web enough to convince Netflix to backpedal or offer a concession? It doesn't sound that way. 
 
 When asked these questions, Swasey said: "These are our prices." ||||| If there's one movie that should top the queue for Netflix CEO Reed Hastings today, it's Cool Hand Luke. Not because he's managing the company with Paul Newman-like composure--but because he's been explaining away his latest decisions and the company's problems as one simple issue, a failure to communicate. 
 
 For it's next act, Netflix is spinning off its DVD business under a new brandname, Qwikster. Yesterday on Netflix's blog, Hastings offered this mea culpa: 
 
 "When Netflix is evolving rapidly...I need to be extra-communicative. This is the key thing I got wrong...In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, 'Actions speak louder than words,' and we should just keep improving our service. But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both." 
 
 But critics are already saying that neither Hastings' actions nor words can make up for the company's past mistakes. Are they right? 
 
 When introducing the company's 60% rate increase back in July--the announcement which sparked this fiasco--Netflix customers' reactions were universally negative. What many found disheartening more than subscription changes themselves was the way Netflix communicated about them: automating the price increase, then framing it as a "terrific value" that offers consumers more "choice." 
 
 Subscribers saw right through this corporate boilerplate, leaving nearly 13,000 comments on Netflix's blog, creating a social media nightmare for the company on Twitter and Facebook, and overwhelming Netflix's call center with complaints. 
 
 Months later, Netflix has yet to find a better way to explain the changes, even when its CEO is being "extra-communicative," leaving a rational observer to wonder whether there is a way to explain to customers and investors who expect constant growth that Netflix is knowingly sacrificing a portion of its customers in order to survive longterm. In his blog post yesterday, Hastings started the right way: "I messed up," he wrote. "I owe everyone an explanation." 
 
 But his explanation quickly got complicated. Because Netflix's DVD-by-mail and streaming services have become such distinct businesses, Hastings says, the company has decided to split them up: Netflix will be the streaming side of the business, while Qwikster will be for DVDs by mail. What does that mean? If you still want to receive those red envelopes in the mail--the ones that say "Netflix" on the front--you'll soon have to head to Qwikster.com, where you'll have a separate queue, a separate rating and reviewing system, and a separate bill on your credit card statement. 
 
 "A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated," acknowledges Hastings. "So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa." 
 
 That's quite the convoluted offering, especially considering how customers just learned of their new tiered subsciption plans: streaming for $7.99 per month, DVDs by mail for $7.99, both for $15.98, or more depending on the amount of DVDs out at one time. Now Netflix is trying to educate its members about a new, disconnected service, under a different brand name--and telling them to pay for it separately. In other words, Netflix is trying to communicate what it couldn't communicate correctly before--because it was too complicated--by introducing more complications. 
 
 I know this firsthand as the son of your-average-not-too-tech-savvy parents. The recent price hike took a bit of time to explain. (Should we switch to DVDs only? Just streaming? Keep both?) I fully expect a call later today from my mom asking, "What's all this Qwikster business about?" My parents--and others in their demographic--are the same consumers who haven't changed how they pay for HBO since Arli$$ was the network's big hit. And in just a couple months Netflix has asked them to learn new aspects of its subscription plans and dramatic changes to its business--all but making the company's offerings the digital equivalent of a menu at the Cheesecake Factory. 
 
 "I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly," Hastings wrote. And it's not for lack of trying, as he has taken to the comments section (more than 600 posts have flown up just hours after his post went online) to defend his announcement. 
 
 "Seriously, you thought a good idea to make up for miscommunications was to separate the websites and make it more complicated for us to manages our queues? Really?" reads one of the most popular comments on the site, with more than 265 Facebook Likes. 
 
 Responds Hastings, "We think the separate websites (a link away from each other) will enable us to improve both faster than if they were single websites." (Only 54 Likes, at last count.) 
 
 I wonder when the next mea culpa will come, or if and when it does, will it be on Hasting's personal blog, Netflix's or Qwikster's? 
 
 [Image: Flickr user Matt Reinbold] ||||| SAN FRANCISCO (MarketWatch) — The meteoric rise of Netflix Inc. has led many analysts and industry figures to call the online video-rental business a “momentum story.” But on Thursday, Netflix cut its quarterly subscriber forecast, leading those already skeptical about the company to say its momentum has faltered. 
 
 Reuters Netflix CEO Reed Hastings in June, before the company announced price increases that resulted in fewer-than-expected subscribers for the third quarter. 
 
 Before the market opened, Netflix NFLX, -0.05% reduced its U.S. subscriber forecasts for the third quarter. The company now expects to end the quarter with 24 million total subscribers in the United States, down from an earlier estimate of 25 million. 
 
 Netflix also lowered its estimates on video-streaming subscribers to 21.8 million from 22 million, and its DVD-only subscribers to 2.2 million from 3 million. 
 
 The decline is attributed to Netflix’s plans to split its DVD-rental and video-streaming offerings into two distinct plans. Customers now will have to pay either $7.99 a month for unlimited video streaming, $7.99 a month to have one DVD out a time or $15.98 for both — whereas those plans combined previously had cost $9.99 a month. Those price changes take effect this month. 
 
 The news caused a selloff on Netflix stock. By the time the market closed, Netflix’s shares had fallen by $39.46, or almost 19%, to close at $169.25. The losses erased all of Netflix’s gains for the year and sent the shares to their lowest point since last November. 
 
 Analysts who previously had been dubious about the company’s prospects found even more ammunition with Thursday’s announcement. “They had been getting more subscribers, which helped them acquire more content, which got them more subscribers,” said Tony Wible of Janney Montgomery Scott, who rates the shares as a sell. “But they found that raising prices and lowering content was a momentum-breaker.” 
 
 Netflix’s case hadn’t been helped by a breakdown in talks over continuing its content deal with Liberty Media Corp. LSTZA which provided content from its Starz programming library. The current deal is set to expire at the end of February 2012. 
 
 Even analysts that are enthusiastic about Netflix said it’s difficult to find something positive in the company’s subscriber announcement. 
 
 “They’re missing most of the subscribers on the DVD-only plan, so that’s kind of the silver lining,” said Mike Olson, of Piper Jaffray. “But they’re missing DVD customers without the offsetting additions in video streaming.” 
 
 Olson has a buy rating and $330 price target on Netflix. 
 
 Netflix’s share gains had made it one of the market’s stars of the last year, with the company’s stock reaching an all-time high of $304.79 on July 13. At that point, it had risen 73.5% during the year. 
 
 “They had a balance that was working at the $8-to-$10 a month price plan,” said Michael Pachter, of Wedbush Securities, who also rates the stock as a sell. “But then content owners wanted more money, so their [Netflix’s] reaction was to charge more for content, and they exacerbated that with a price increase.” 
 
 Despite the negative reaction, Netflix stood by its decision to split its pricing plans. 
 
 “We know our decision to split our services has upset many of our subscribers, which we don’t take lightly,” the company said in a statement. “But we believe this split will help us make our services better for subscribers and shareholders for years to come.” 
 
 Pachter said he wasn’t sold on this reasoning. “Each time you lose some content, you’re going to lose some customers,” he added. “If you reduce your content by X%, you’re going to lose Y% of your customers. Now they’ve raised prices and reduced content, and the value proposition is getting worse.”
– Well, now we know what a portion of those new, higher Netflix fees could be used for: to pay call center reps to deal with angry customers. Customer service reps have been telling callers that the company not only told them to be ready for a backlash, it hired extra employees to take the calls, CNET reports. “We tested, we researched, we analyzed. We knew what the reaction was going to be,” a spokesman confirmed. “We are not surprised.” Despite the extra manpower, the phone lines have been overwhelmed. One analyst found that it took representatives nine to 15 minutes to get to the many callers on hold. When they did pick up, their suggestion was to just cancel in September, when the price increase hits. “There was simply no promo or 'save' technique to … retain our business,” he complained, indicating that “Netflix is simply not concerned with the prospect of losing customers.” But hey, it’s not all bad news, Netflix users: The company has renewed its deal with NBC Universal, so at least you can stream new episodes of 30 Rock.