Friday, May 29, 2009

Netflix's Annual Shareholder Meeting (2009)

[Note: this 2009 post caused an uproar in the online community, leading to a small Facebook revolt and support from star Marlee Matlin. Within a few weeks, Netflix announced it would enable online captioning by 2010 (but didn't provide specific benchmarks). The real surprise? As of November 7, 2009, not a single mainstream media outlet had formally covered either the issue of online captioning or Netflix's response. Finally, on February 24, 2011, Netflix announced 80% of its streaming content would be captioned by the end of 2011. Thank you to everyone who supported the online captioning campaign.]

[Note: A major media outlet did eventually cover the issue of online captioning--a year later. See here for June 20, 2010 NYT story.]

Netflix, Inc. (NFLX) held its annual shareholder meeting yesterday at its headquarters in Los Gatos, California. The meeting lasted less than half an hour and around fifteen non-employees attended. As usual, only cookies, water, and soda were offered.

The meeting consisted of CEO and Founder Reed Hastings answering shareholder questions. There was no presentation.

I like Reed Hastings. He has great ideas on education reform, and he is smart enough to have caught the eye of Microsoft (MSFT), which placed him on its board of directors. When it comes to annual meetings, however, Mr. Hastings seems like he can't wait to get back to work. That's a laudable trait in a CEO, and most mathematicians (he majored in math) aren't known as overly social animals anyway.

Shareholders' comments were generally half-question, half-compliment. One shareholder praised Netflix's compensation factors, also known as "performance factors." (See 2009 proxy statement, pages 14-15: "to attract and retain outstanding performers, it must provide a challenging work environment. To this end, the Company strives to maintain a high-performance culture.")

Netflix also evaluates employee performance based on several factors, including judgment; innovation; impact; curiosity; communication; courage; honesty; selflessness; and passion. It's unusual for a company to openly tell shareholders that it bases compensation partly on goals like "honesty." Netflix rightfully deserves compliments for having a multi-faceted compensation analysis that includes an ethical component.

Another shareholder asked what the company was doing now that more players were entering the streaming video business. Mr. Hastings answered that Netflix "is always having to compete," and businesses like www.hulu.com were changing the competitive landscape. At the same time, he said, "It's a big landscape," and while there will be "more competition in the future," Netflix was continuing to add subscribers at a healthy rate. Mr. Hastings also said that the most competition came from cable and satellite companies.

Another shareholder asked what Netflix would look like in five to ten years. Mr. Hastings answered that he didn't have a crystal ball, but Netflix currently had millions of subscribers and he hoped to to keep increasing its customer base.

I asked two questions. Page 10 of Netflix's 10K states that Netflix had issues with Starz Play service:

Many of the [streaming video] licenses provide for the studios or distributor to withdraw content from our service relatively quickly...For example, in December 2008, certain content associated with our license from the Starz Play service was withdrawn on short notice.

I asked why Starz Play revoked its license in 2008. Mr. Hastings said he didn't know about that (perhaps he didn't understand my question) and said Netflix currently had a good relationship with Starz Play. When I later pointed him to the 10K, Mr. Hastings said he did not want to comment. He reiterated that Netflix currently has licenses for Starz Play. [Update: when I followed up on the Starz Play question, I read out loud the relevant section in the 10K to Mr. Hastings. He appeared to understand my question the second time and immediately said he had no comment.] I was a little stunned, because Mr. Hastings was not willing to answer a question about a publicly disclosed fact. I realize as a small shareholder, Mr. Hastings doesn't owe me answers on every question I ask, but the Starz Play revocation seemed like an important issue, and an issue that might impact the share price. Although I didn't say it, I was thinking, "If Netflix doesn't want to answer reasonable questions about its company, why did it go public?"

I then mentioned Netflix's failure to add captions/subtitles to its online streaming videos. Netflix's "instant play" option doesn't include captions, making its online video option unusable for many users. As a result of not offering captions, Netflix is alienating its hearing-impaired, deaf, and senior citizen customers. According to some estimates, there are 34 million hearing-impaired persons in the United States. One would think Netflix would think better than to alienate such a large customer base.

I asked what Netflix was doing to make its website and online video accessible to everyone. Mr. Hastings said other online streaming sites didn't offer captions, and mentioned hulu.com as one of them. He said as time progresses, captioning technology will become more widespread, and Netflix would then incorporate it into its own technology. He also said that customers can continue to receive DVDs through the mail, and most DVDs contained captions.

Unfortunately for Mr. Hastings, I use hulu.com to watch Simpsons episodes. Except for a few episodes, every Simpsons episode I've watched had captions. Obviously, the technology exists to make online video accessible to everyone, so I wasn't quite ready to let this topic pass. I gave Mr. Hastings another chance to explain how he would make his business accessible to everyone. I mentioned that hulu.com did indeed offer captions, and I said (paraphrased), "It sounds like you're not planning to do anything to add captions to your site. Am I correct in understanding that you don't plan on making your online videos accessible to the disabled?" Mr. Hastings said he would check out hulu.com, but essentially agreed that adding captions wasn't an active agenda item. Now, I don't want to go Kanye West on anyone, but it didn't feel like Mr. Hastings or Netflix cares about deaf people.

Mr. Hastings is making a poor business decision by not maximizing his site's accessibility. First, Netflix has already signed up the "low-hanging fruit." In order to keep growing and to justify its relatively high P/E, it will now have to maximize its customer outreach efforts. By not even trying to make online video accessible to the disabled, Netflix is losing goodwill and a large potential customer base.

Second, although Netflix wants to grow its online video business, it is subject to the whims of the studios and other content providers. Netflix doesn't have much leverage over the studios, who control their online content and may wonder why they should license content to Netflix. The December 2008 Starz Play incident shows just how vulnerable Netflix is to having its access unilaterally cut off. To encourage content providers to grant Netflix licenses on reasonable terms, Netflix needs to add something of value. Providing captions for online content may be one low-cost method of offering value to content providers. (I don't know exactly how much it would cost to create online video captions, but there are plenty of people in English-friendly countries who would be willing to do the work.)

Third, being insensitive to the disabled will harm Netflix's public image. I am surprised that Microsoft's good corporate citizenship in this area hasn't rubbed off on Mr. Hastings. Although Microsoft gets a lot of bad publicity, it is actually at the forefront when it comes to offering tools to assist the disabled. Here is a list of the awards it has received as a result of its work on behalf of the disabled. Here is one relating to the hearing-impaired community:

Microsoft was recognized among 12 companies and two educational institutions for "extraordinary efforts in promoting equal access to telecommunications and media for consumers who are deaf, hard-of-hearing, late-deafened or deaf-blind..." "TDI commends Microsoft for its special commitment and allocation of resources over the years to introduce and offer accessible and usable software applications for all Americans. With this technology, deaf and hard-of-hearing Americans can fulfill their potential as full, active participants in the general mainstream—regardless of differences in culture, language and communication."

Bet you didn't know about Microsoft's good reputation in the disabled community. That reputation has created lots of Microsoft supporters willing to speak up when others bash the company. In short, there is no need for Netflix to alienate an entire community, especially not one that contains millions of potential customers.

I understand that Mr. Hastings founded Netflix, controls much of the stock, and probably feels like he doesn't need to listen to anyone. At the same time, Netflix needs to more carefully manage its reputation so it maximizes its customer base. It already has many loyal fans and will probably keep growing (though its rate of growth may not be as high as some shareholders would like). Despite my criticism, I love Netflix and am a huge fan of the company. The algorithm that recommends movies has pointed me to many wonderful films I might have never found on my own, like Germany's Ali: Fear Eats the Soul, China's Shower, and Iran's Children of Heaven.

Mr. Hastings did shake my hand after the meeting and told me he wished he had better answers for me. He gets points for that gesture. I hope he will actually do something about Netflix's inaccessible features. In the meantime, I will not be adding to my small position in the stock. Absent a buyout, perhaps from Microsoft, Netflix looks fairly valued to me.

Bonus: I also blogged about last year's annual meeting here, calling it one of the strangest meetings I've attended.

Disclosure: I own an insignificant number of Netflix (NFLX) shares.

Update on June 1, 2009: unfortunately, this doesn't apply to online video, but if you have a complaint about a television show not being captioned, the following link shows you how to make an effective complaint:

http://www.hearinglossweb.com/Issues/Access/Captioning/Television/file.htm

Update on June 13, 2009: Netflix finally issued a statement re: captioning:

Captioning is in our development plans but is about a year away...I would expect to deliver subtitles or captions to Silverlight clients sometime in 2010...

It appears Netflix has changed its tune somewhat, but if you read the comments on the Netflix post, many readers are questioning Netflix's explanations and statements.

As of today, the Facebook group, "Netflix Watch-Instantly Needs Closed Captions!" had 983 members--most of whom joined after my review of Netflix's annual meeting was published.

Update on June 18, 2009: Here is my follow-up post to this story. The pro-captioning Facebook group continues to grow--"Netflix Watch" has 1,129 members.

Update on August 29, 2009: "Netflix Watch" now has over 2,000 members.

Update on April 18, 2010: Netflix has finally captioned some online videos, but only 100 so far. More here. Looking at hulu.com's options, which include online captioning and transcripts, I am still not happy with NFLX's slow progress. I guess it's a start, and better than nothing. Thanks to everyone who helped NFLX realize the importance of online captioning.

18 comments:

Der Sankt said...

Hey

You just learned that?!

(this is over the course of a year and an half) I contacted customer rep, the public relations people, and all that. Not a single person would address this issue. You see, I design websites and work on multimedia materials on a daily basis...Every now and then I would need to rip off a DVD or something...

This is a fact! When you rip DVDs or what not, you take ALL the information from the DVD into whatever memory you saved it on--including the subtitles! My question to Netflix was always this:

Why in the process of posting it online do you guys take the time to *REMOVE* certain features such as CC and all that. They never responded.

I contacted ACLU and they said that they need more people to start considering a class action suit. NAD basically said uhmm, there's no precedent so we can't sue.

Really--so I decided to do what's best for me--kick netflix off my list of bills. THey asked why I told them.

They still bother me with "please come back" but seeing the attitude of the CEO...I have two words for them:

Sod off.

-Ben

tayler said...

Excellent post. I was impressed with Netflix, reading about their performance-based employee evaluation--but my heart quickly sank when Hastings said others companies weren't captioning their shows.

Borrowing from his company's evaluation method, if I were to review Hastings, I would rank him low on innovation, impact and courage based on this attitude.

If every CEO is thinking because no one is doing it, they don't need to; then it will never get done. It doesn't matter if Hulu captions their shows. This attitude can make or break a company. To be competitive, they have to innovate on all fronts. Netflix's future isn't bright in this aspect. The unfortunate lack of innovation spirit should scare any shareholders investing in an ever-changing landscape. This landscape requires innovation not only to thrive, but even to survive. This makes it seem harder to hold onto your shares, doesn't it?

The irony is it won't be difficult for Netflix to innovate on captions, because the technology exists. Why the resistance?

I am a Netflix subscriber. I also downloaded Hulu Desktop yesterday, and watched two (captioned) episodes of The Simpsons last night. As providers add more instant content, I'll see less and less reason to wait for the post office to deliver my shows. And the provider that I choose of course will be one that supports captions.

Non-captioned content isn't content at all. At next year's annual shareholder meeting, tell Mr. Hastings to watch any show with the volume turned off. Suddenly, it doesn't look like content.

Again, I enjoyed your post. Thanks.

Anonymous said...

WOW! this blog blew my mind. I had no idea that Netflix did not, and does not plan to caption its online streaming videos. A friend of mine told me recently that you could buy a set top box from them for $100, and then pay a monthly fee for unlimited movies from Netflix. Since summer vacation is coming up and I'll have time on my hands, I was all set to buy one and catch up with my movie watching. I am very glad you mentioned that there will be no captions on Netflix. Being a San Francisco Bay area resident, I am outraged that they would exclude our vibrant deaf and hard of hearing community in this way. Conversely, I never knew that Microsoft was so supportive of access to their products. Microsoft should think twice about involving themselves with a company like Netflix for whom telecommunications access is not even a blip on their radar. I plan to call Netflix myself and let them know what I think about their discriminatory practices.

Jared Evans said...

I'm terribly bothered by Reed Hastings' attitude towards the valid needs of Netflix customers for the subtitles/captions for the online movies.

I've posted about this:
http://www.jaredlog.com/?p=1080

RLM said...

Jared,

Real good to see your blog posting!

I also was flabgastered (msp)
when the Netflix CEO Hastings dismissed the subtitle/caption options for the streaming online videos.

Who the F**K Hasting thinks?

I strongly urge you and other deaf video users to get in contact with the U.S. House of Represenative Markley or Murkley, the chairperson of the HR's Technology and Accessible Communications.

Rep. Markley occassionally said that he was all for the accessible communication within the online world like captioned videos. He pointed out to many innovations and possibilities within the Internet and couldn't understand WHY any companies are not able to do that.

Deaf-blind and blind people also endlessly complained about lack of descriptive materials on the Internet.

I will get back to you with the right name and phone number and email address (??) of Rep. Markley.

There is supposed to be the federal legislation on the issue of accessible communications within the Internet this year. I did not see this bill coming up so far.

RLM

J.J. said...

Like Der Sankt...I have known about this for a LONG time now...in fact TWO FULL years...see here:

http://blog.deafread.com/iwii/archives/17

I even get dumb E-mails from hearing people who find my blog via google.

deafguy said...

If I owned Netflix shares I would be calling my broker to unload them...because if a CEO thinks a competitor doesn't caption when it does it brings in question if the CEO is really competent.

Also why would I, a deaf, bother with by mail netflix? I can get captioned movies for 41 from a Redbox machine... when I want.. NOW..

I also can go to HULU and see a good number of TV episodes...captioned..

Eventually netflix will face a law that says provide captions or close up shop.

Congress intent on the caption law in place was to ensure whats on TV/cable is accessiable... that law will be updated to ensure online providers must also do same thing.

When it happens, netflix will scramble to work it bout at a higher cost then if they do before eventually it is mandated they must.

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Jamie Berke said...

Thank you for posting this to make the deaf and hard of hearing community aware of the Netflix CEO's (bad) attitude. I blogged it at Deafness.About.Com. I assume you are hearing, but I couldn't be sure when I blogged this. Again, thank you for giving us proof of a company essentially refusing to caption!

frasswino said...

Thanks for the post on Netflix and captioning. I'm a hearing person who uses captions all the time. I have written Netflix to complain about its cavalier attitude toward captioning to no effect like everyone else who's posted.

I'm not going to stop writing them. I'll refer to this post in my next letter. It takes dogged persistence. TV wasn't captioned till it was made illegal not to caption. The overwhelming bulk of movies in theaters aren't captioned either - often not because the prints aren't captioned, but because the theaters don't have the equipment or don't advertise it.

Sad to say, but it takes legislation to make people do the right thing, and laws only get made when enough people complain.

Joe Clark said...

Well, I’m sure Moldova is an “English-friendly” country too. Why not hire them?

Ever talked to an Indian call centre? What language are they speaking? The same one you hear on Hollywood movies and TV shows? Nope.

Listen, we’ve got enough of a problem already with half-assed captioners shipping work to ESL countries that falsely bill themselves as English-speaking. The results suck, plus it’s a vector for piracy. (Do you really want high-quality video files shuffling between the U.S. and India? Where else are they gonna end up?)

High-quality captioning, however we might define that, can be done solely by native speakers. Indian English speakers can and should caption Indian English productions, but nothing else. Give us a break, please.

Alsonny said...

Captions enhances not only accessibility for the viewers with hearing disabilities but illiterates, immigrants and hearing children learning English which reaches the minimum population of 100 million or about one third of all Americans. In other words, it would be an excellent business practice to include closed capitoning in ALL programs.

Dana said...

I'm afraid that K_Yew might have misunderstood a couple of issues.

The first one is about Starz Play; K_Yew appears to have misunderstood what NetFlix said about what happened in December 2008. As I read it, Starz Play suddenly told NetFlix that there would be a time limit on how long some of their video content could be displayed, and NetFlix was surprised by the sudden notice. K-Yew misunderstood this as a "revocation of the Starz Play license" but that isn't what happened. That's why Hastings wasn't able to answer the question about "why Starz Play revoked its license in 2008" to Mr. Yew's satisfaction---because Hastings didn't understand why K_Yew was asking this question (since it hadn't happened).

The other issue is about the technology involved in "repurposing" captioning that was done for a DVD. TV programs and DVD files apparently don't use the same kind of video files that are used for streaming video. My understanding is that although the science exists to put human beings on the moon, no one has apparently yet figured out how to automatically convert caption files created for one type of video to a kind of file that will work with another type of video (even though it seems this should not be all that difficult in theory). Even Hulu.com reportedly has to have people manually format the caption files for its own streaming video. Thus, at this time, there's manual labor involved in captioning every single streaming video even though there are perfectly formatted caption files for the original video. Therefore, we need committed experts to figure out what needs to be done so that captioning can be used easily for different kinds of video files (and hopefully future-proof that conversion process so that future video files can also use the captioning). When that happens, a lot of companies will probably voluntarily start providing captioning for everything that was already captioned. Hastings was saying that when caption technology gets improved (to that point), NetFlix will go ahead and provide captioning voluntarily.

The trouble here, though, is that the vast majority of people are completely unaware that captions used for television programming or for DVDs cannot yet be automatically be converted for use with streaming videos. (And if I'm wrong that there isn't such an automatic conversion process today, then please make me happy by providing all the details about that!)

K_Yew said...

Dana, thank you for your comment. I want to address two issues you raise:

1. You indicate that Mr. Hastings may have misunderstood my first inquiry about Starz Play. I said as much in my blog post, where I wrote, "perhaps he didn't understand my question."

After I asked the Starz Play question and realized Mr. Hastings was confused, I asked to be skipped while I looked up the relevant section in the 10K. After the next person asked a question, Mr. Hastings returned to me, and I read out loud the relevant section in the 10K about Starz Play. The second time, Mr. Hastings certainly understood my question and did not comment. I was surprised that a CEO of a public company was not willing to answer a reasonable question. You seem to have provided more information than he was willing to disclose at the meeting to the company's shareholders.

2. I understand that online video captioning is not a seamless process. The reason many people are concerned is because Mr. Hastings openly admitted that Netflix would be a passive, not active, participant in making its site accessible to millions of people.

I was so surprised to hear him say that Netflix would be passive when it came to accessibility issues, I made a conscious effort to confirm that my understanding was correct. I basically said, "It sounds like Netflix will be taking a passive role and will wait for others to provide captioning instead of taking an active role in making its website accessible to the disabled." Mr. Hastings agreed with my comment and did not contradict me.

Again, I understand that the current technology for online captioning is not seamless. Even so, Netflix has known about this issue for years. Google "netflix captioning deaf" or some variation of the search terms to read hundreds of posts on this very issue. It is unclear what Netflix has done, if anything, to make its service more accessible to millions of current and potential customers. Online captioning is an important business/shareholder issue, because if Netflix is knowingly ignoring millions of customers, its reputation will suffer and its growth rate will decline.

It is troubling to hear a CEO admit his company will take a passive role in an important issue affecting millions of disabled persons. Currently, there is no law relating to online internet captioning. To avoid excessive regulation, someone has to spur progress on this issue, and notable persons like Mr. Hastings can lead the way.

If Mr. Hastings disagrees with my characterization of the meeting and his comments, he is free to publish the ways his company is making Netflix fully accessible to millions of people. As I said in my post, I like Mr. Hastings. I hope he will finally deal with the issue of online captioning, which Netflix has known about for many years.

Lawrence said...

As long as one is blasting Netflix for their failure to address access needs for people with disabilities, I'll praise their competitor Blockbuster. Long ago, I switched from Netflix to Blockbuster. Why? Because instead of mailing the DVD back, I trade it in at the local Blockbuster store for another DVD movie. That means the DVD I trade in is replaced by a DVD mailed from my queue the same day and I'm home with a DVD movie from the Blockbuster store the same day also. This is especially valuable as I travel a lot and I'm never without a DVD movie. When I'm on the road for more than a month, I change the mailing address from my home address to my mail forwarding address. So switch to Blockbuster and never be without a DVD wherever you are. And by the way, Blockbuster indicates on line whether the particular movie is SUBTITLED or CLOSED CAPTIONED or BOTH, which I always check before adding it to my queue. So why fight, when you can switch.

Anonymous said...

Lawrence,
We need to fight because streamed video is the way of the future. If we don't fight now, then when the future arrives and we are living in an era where most people get their movies streamed online, the deaf and hard of hearing community is going to be left out.

Anonymous said...

Lawrence,

You are completely missing the point. This is not about CC or subtitles on DVDs. Its about CC on STREAMING video. Netflix also tells you online if the DVD has CC or subtitles so it's not like Blockbuster is the only service that does that.

Alison said...

http://blog.netflix.com/2009/06/closed-captions-and-subtitles.html