Netflix has been on a bit of roller coaster ride as a company, as most people who subscribe to the service or love movies and follows such things already know.  The story is not unlike a bad M. Night Shyamalan movie; it’s got twists, turns, and is often based on such lame and asinine premises that one just has to laugh at the crazy plot points.

But rather than chronicle all the wrong moves Netflix has been making as of late, such as separating their streaming and DVD rental business into two Web sites and now backtracking on that decision (interestingly, in a letter not from CEO Reed Hastings as the other infamous letters were, but just from “Netflix”), let me offer the letter I think Netflix should have written to their customers in light of their recent price hikes.

One could argue the price increases were the wrong decision as well, but I’m not convinced of that.  In fact, I think there’s an argument to be made that Netflix did NOT, in fact, raise their prices.  This point will soon become clear.  Here is the letter:

Dear Netflix Customer,

As you know, Netflix’s streaming service has grown by leaps and bounds over the past two years, and we now currently offer thousands of movies and TV shows that you can stream instantly to almost every device in your household.  From the iPhone to the big screen TV, Netflix built in to hundreds of devices that make using our streaming service so convenient.

As a company we continue to invest in our streaming service, and we strongly believe streaming is the way most customers prefer to consume their entertainment.  However, in order to continue to invest in expanding the number of titles and overall quality of our streaming services, we have decided to adjust our pricing model.  In most cases, the new prices will not change how much you pay on a monthly basis for Netflix.

You may have noticed that our streaming service has grown tremendously in the past few years.  In fact, on a plan-by-plan basis, the average customer now consumes [INSERT % HERE] more total titles today than three years ago.  The number of titles available, the convenience and the high quality our streaming offers are a testament to that.  As you can imagine, while the number of customers streaming content has grown considerably, those who receive DVDs by mail are holding on to them longer.  Given the choice, our customers have demonstrated to us that they prefer to stream rather than wait for a DVD.

So, in order to continue to invest in and expand on our streaming services, we are going to adjust our pricing model.  In essence, we are leaving our prices the same, but reducing the number of DVDs out at a time on your account by one.  In other words, if you had a streaming plus 3 DVDs out at a time subscription, you will be switched to a streaming plus 2 DVDs out at a time.  Your monthly rate will not change.

Of course, if you prefer to only receive DVDs by mail and not stream any content, there will be no changes to your account and you will continue to pay the same rate.  We also have streaming-only options for those who prefer that option as well.

We believe these changes reflect the value we’ve added to the Netflix streaming service over the past few years, and will allow us to continue to invest in and add further value.

We sincerely appreciate your business and I invite you to write back with any comments, feedback or questions you might have about these changes.  I look forward to hearing from you.

Sincerely,

Reed Hastings
CEO and co-founder, Netflix

* Note: The pricing changes suggested in this letter reflect the pricing changes Netflix actually made; they’re simply presented in a different light.

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Apple recently stopped offering $0.99 TV rentals, saying that their customers prefer to buy TV shows instead of rent them (the price to purchase is $2.99 for HD content, and $1.99 for standard definition).

In a business sense, obviously the reduced price did not significantly increase sales volume to justify keeping the rental vs. the purchase model. But I don’t think it’s correct to say customers prefer to buy vs. rent as such. The truth is, Apple’s iTunes user interface (UI) was terrible for renting TV shows, and customers and the rental model were never really given a chance.

The iTunes interface suffered from a number of functional problems. For example, when you rented content, you could only play it on the device you rented it on. But worst of all, iTunes had no bookmarking feature that kept track of which shows you’ve rented, so it was nearly impossible to keep track of where you were in any particular show. Nor did the customer, as renter, know when a new episode of a TV show became available for download. One can buy a “Season Pass” on iTunes, and get the content of that TV show pushed to you automatically. Not so with a rental.

Netflix, on the other hand, has a bookmarking feature. And whether you switch between the home TV set, your computer, your iPad or iPhone, or any other device you might have, the last show you watched is marked as such. All you have to do is tell Netflix you want to watch the “next” episode in the series of the show you’re watching and it knows what to play next. It’s easy to keep track of which shows you’re watching (via a ‘recently watched’ list) and which episode you’re on in any particular show.

Without bookmarking or season passes for rentals, Apple customers likely lost track of their place and just gave up, frustrated—or forgot about it altogether. The real problem wasn’t that customers prefer to buy vs. rent, nor was it about price; it was that the cost of using their UI was too high.

Today I went to add Ayn Rand: In Her Own Words to my DVD wish list on Amazon.com. A few minutes later I received an e-mail stating that my order was received and would be shipped soon. I did click ‘Wish List,’ didn’t I? How was I suddenly buying this DVD? Luckily, I caught this in time to canceled the order. No harm done.

But darn it, I was pretty sure I had clicked the ‘Add to Wish List’ button. On the other hand, I found it difficult to contemplate how Amazon could make an error like that. I figured it was user error, and I went back and retraced my steps to figure it out.  Here’s what I discovered:

Upon first loading the page, the ordering box looked like image you see at the right. Now, I’m pretty fast with my mouse and am very familiar with the Amazon site, so I quickly went over to click the ‘Add to Wish List’ button, and then moved my eyes to another open window and thought that was the end of it.

So how did it the ‘Buy now with 1-Click’ button get clicked? It turns out that the image above is only part of the story; shortly after the page is fully downloaded into the browser (I’m using Chrome on Windows 7), some more options appear in the right-hand ordering box, notably a ‘Get it:’ option (shown at right) with the ability to select between Saturday delivery or Tuesday delivery.

I love this ability to choose shipping options just before clicking the 1-Click ordering.  It’s pretty convenient.  However, because this portion of the page doesn’t load until the rest of the page loads, it actually pushes the content below it down a few pixels.  Enough pixels, in fact, that the time between when I saw and meant to click ‘Add to Wish List’ and when I actually clicked and moved on to other things, the ‘Buy now with 1-Click’ button had moved under its place and that was the button that was actually clicked.

The image shown to the right of this paragraph illustrates what that order box part of the page looks like before and after the page is fully rendered.  Comparing the two side-by-side, you can clearly see that the ‘1-Click’ button has moved down to exactly the part of the page where the ‘Add to Wish List’ button is in the image above it. Viola! I figured out what happened.

So let that be a UI design lesson for all you developers out there. Or perhaps it’s a lesson for me to stop surfing the ‘net like a maniac.

Either way, designers should  be on the lookout for how a page loads in real time, behaves over time, and how that impacts the user experience. You don’t want to accidentally be buying stuff on behalf of your customers.

When Conan O’Brien moved to TBS after his Tonight Show gig was cancelled, he also pushed back George Lopez’s late night show an hour.  According to news reports at the time, this was done with the full blessing and possibly even the invitation of Lopez.

The obvious reasoning behind the move is that Conan would bring in a huge influx of new viewers to the network, and while Lopez would be on later, the carryover from the Conan boost would more than make up for it.

Unfortunately, that bet didn’t pay out.  This week TBS announced they’ve canceled Lopez’s show, due to low ratings.  And a recent article in Variety posed the question: Did Conan Undercut Lopez?  It’s an interesting analysis of the ratings and speculation as to the reasoning behind the move, and anyone interested in the matter should read it.

The dirty little secret in this story is that a large portion of Conan’s audience is watching him online or with their DVRs, i.e., when time slots are irrelevant. So while TBS is happy with the overall take-in of Conan-based revenue, it doesn’t help much with the rest of TBS’s programming.

Perhaps, if anyone is taking notes here, it should be Conan. People are showing up for him and his brand, not for any particular network.  So what if he were to cut the cord, so-to-speak, and produce his show exclusively online?  Sure, at the beginning, the overall ad revenue pie might be smaller for his show, but he’d get the full piece of it and not have to share it with a network.

Internet based video content is exploding and maturing.  And many shows produced for internet consumption are increasingly grouping themselves together under “channels” or “networks” of their own.  Look at Leo Laporte’s TWiT.tv network, Jason Calacanis’ This Week In network, Streamin’ Garage, etc.

If Conan is happy producing his show and that’s all he wants to do, then yes, he should definitely be with a network that can manage his online presence and let him do what he loves to do.  But if he wants to join the pioneers of online content production, the data clearly shows that the opportunity is his to seize—if and when he wants to seize it.

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I recently read Rework, the book written by Jason Fried and David Heinemeier Hansson, the owners of the company 37signals.

It throws a lot of conventional wisdom about business out the window, and embraces that scrappy, “get things done” attitude that I admire.

One important idea in the book is to “sell your by-products.”  I loved this chapter and, if you have a new or growing business, is a critical principle to leveraging the most out of your business.

The basic idea is this: every business has a by-product, and one can leverage these into sellable items.  In fact, Rework itself is a by-product from the authors’ experience in running their company, 37 Signals.

During my tenure at Box Office Mojo, we took a similar approach.  We looked at things we did on a routine basis in our existing workflow to find new and innovative ways to get the most out of them.

One small example was our process of updating rating movie information.  We would enter the MPAA every week for movies they recently gave ratings to.  But rather input the information so it would be viewable on the movie pages themselves, we automated our database to record the date the rating was issued.  From that, we were able to create a page that showed the latest ratings issued by the MPAA.

With just a few hours of one-time upfront development work, we were leveraging our process of entering ratings into a news item we could promote to our readers on a weekly basis.  It required no additional time in our regular workflow, and was an additional item we could “sell” to our readers (more pages views via a regular news item).  We applied this same idea to release date changes, movie title changes and slew of other areas in our business.

Granted these are fairly minor examples, but if you’re looking at ways to improve the bottom line, take a look at your existing processes and see if there’s anything that you’re currently doing that you can leverage into a sellable product with little or no extra overhead.  Even small by-products can add up to significantly increase your profits without impacting your existing operating costs.