Is Reed Hastings Really the Worst CEO of 2011?

The following video is part of our "Motley Fool Conversations" series, in which, David Meier, advisor, Million Dollar Portfolio, and John Reeves, analyst, discuss topics around the investing world.

In today's edition, John asks David whether it's fair to include Reed Hastings on a worst-CEO-of-2011 list. Dave doesn't think it is, arguing that Hastings was trying to do what he thought was right for the future of Netflix. The execution might not have been smooth, but David thinks the strategy was reasonable under the circumstances.

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David Meier and John Reeves own no shares of the companies mentioned here. The Motley Fool owns shares of Yahoo! and Bank of America. Motley Fool newsletter services have recommended buying shares of Yahoo! and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On December 23, 2011, at 9:14 PM, Teo123 wrote:

    In a word, "Yes."

    Companies cannot raise the price of a prime product by 60% overnight. That is what Netflix did.

    Now, Netflix did some other things, too, like first trying to sever the DVD by mail business from the streaming film business (actually, let's not forget: first it raised the price by 60% for one-DVD subscribers; they complained and then Netflix tried to sever the two services; then it said it would not sever the two delivery channels from one another). From the consumer's perspective, the upcharge was merely a charge for a product because of how the product is delivered. It's akin to a bank saying that a checking account costs $10 per month -- unless you want checks with the product or you want to go to an ATM. If you want these services, it's $16 per month. The product, from the consumer's perspective is the same: you want an entity to keep your money while you access it periodically. Here, we want to rent movies -- either by getting them sent to us or by streaming them online. So, once the technology was there and everyone started streaming and mailing, NFLX needed to gradually raise the price on the overall service if its costs were increasing. It didn't do this. It kept gathering subscribers (and advertising "no more late fees" and the like). Eventually its only competitor went under and, well, suddenly it became necessary for NFLX to raise rates - substantially.

    A company cannot raise a price for a core product by 60% overnight. That is what people are fuming over. That is why people are dropping their subscriptions left and right (and will continue to do so). The price went from a pretty affordable $10 to a real commitment of $17.Consumers are still fuming -- and the stock price is getting hammered because the company is losing subscribers at a fast clip.

  • Report this Comment On December 24, 2011, at 12:12 AM, dolvlob wrote:

    I nominate Jon Corzine. At best, he totally lost control of his company. At worst, he is a criminal. Either way, he lost $1.2 billion of his customers' money. Reed Hastings pales in comparison to that.

  • Report this Comment On December 25, 2011, at 3:30 AM, jspatel wrote:

    The thing that I find most unforgivable is repurchasing shares at circa $270 a stub, and then reissuing shares at circa $80 a stub to the tune of $200 million, destroying 66% of shareholder value on the reissued amount. This serious err in management judgment is what has me considering whether current management can keep from making such blunders in the future. For me, the jury is still out; until management proves otherwise, I am not compelled to purchase shares.

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