Corporate Case Study: From inception to IPO, PR has always delivered for Netflix

Amid a bevy of ad-happy dot-com start-ups launched in 1998, Netflix opted to go the PR route. Today, after a May IPO, the DVD rental service will rely on its trusted marketing ally even more.

Amid a bevy of ad-happy dot-com start-ups launched in 1998, Netflix opted to go the PR route. Today, after a May IPO, the DVD rental service will rely on its trusted marketing ally even more.

In the beginning, Netflix lacked sex appeal. Amid such dot-com Lotharios as Kozmo.com and Amazon.com, which exploited overnight and home delivery to woo customers away from checkout-line horrors, Netflix seemed an almost offensively boring proposition. "Here we were, a hi-tech dot-com that used the mail," says Rick Sneed, senior manager of PR. "That's about as low-tech as you can get." Netflix has an easier time explaining itself these days. Members of this DVD rental service become almost fanatical in their devotion to the model. After paying a $19.95 monthly fee, users can rent as many DVDs as they want, up to three at a time, all culled from a master list that is compiled online. The company collects no late fees, and there are no due dates. Each time the user sends a DVD back to the company, in its signature red envelope, another movie on their list is dispatched. A steady climb With 670,000 users, and over 11,500 titles in stock, Netflix has been steadily catching on since its 1998 birth. PR has been an integral part of that process. Sneed, who had worked on the agency side for Ketchum and Edelman, landed at the company in 2000. Leslie Kilgore, VP of marketing, started working at Netflix in March 2000, prior to Sneed's arrival, and handled all of the marketing functions. Kilgore previously ran two of Procter & Gamble's largest brands - Head & Shoulders and Pantene - which utilized a strong blend of consumer marketing and PR. Kilgore managed the company's relationship with its agency of record, the late Niehaus Ryan Wong. At that time, the company was working harder to establish its systems than its brand. "What the company was focused on then was actually building the service itself," Kilgore explains. "The other focal point was the evolution to the subscription-based service from the pay-per-unit model." She realized early on that Netflix devotees were evangelical about the company, and that getting people to try the service and tell their friends about it was one of its greatest marketing tools. Kilgore instituted a free trial, and says that 90% of those who test the service eventually become paying subscribers. PR must be instrumental in driving the behavior change that the Netflix model requires, Kilgore maintains. "[The service] sounds odd when you first hear it; it's definitely different," she says. "The cornerstone is having strong and insightful PR programs to get the world out, and having very straightforward conversations with key influencers." By the time Sneed joined and started managing the agency and PR projects, the company was ready for a new PR strategy. He decided to look for another agency that would offer a fresh perspective on the company's challenges. After revisiting his former employers, Sneed chose Edelman at the end of 2000. Netflix had a number of problems getting attention, other than its media-yawn-inducing reliance on the US Postal Service. One was low DVD household penetration, at that time about 11% of the population. "Editors would look at us after a pitch and say, 'The bottom line is that only one out of 10 people will use it,'" Sneed says. The company was also one of hundreds of start-ups, many of which were paying top dollar for advertising to get attention. The company resisted following the dot-com advertising trend, but had to be extremely persistent to get attention from the media. "My philosophy at the time was get out there, get the information out, and keep knocking on doors," Sneed says. PR prominence starts at the top He was aided by a PR-friendly organization, which extended beyond Kilgore to CEO Reed Hastings. "We have an extremely savvy, smart CEO who is also telegenic, photogenic, and understands the value of PR," Sneed says. "He knows he has limited time to make his point, and within minutes of meeting a media member, he has them charmed." That quality gave Sneed the confidence early on to put Hastings in front of 70 writers and editors at a media luncheon in New York, a move that garnered good coverage. "Most of our sell then was 'the future of DVD,' drawing parallels between cassette tapes and CDs, and working closely with the Consumer Electronics Association," explains Sneed. The timing was right to make that pitch because DVD penetration had doubled to 22% by the end of 2001, and video retailers like Blockbuster announced they would be allocating more shelf space to DVDs. One of Netflix's greatest resources has been James Rocchi, a.k.a. Mr. DVD. Having started at the company as a staff writer, Rocchi's knowledge of both movies and DVD superiority make him an ideal advocate for the medium. Rocchi wrote online reviews of new DVDs, paying particular attention to the features that made the technology a different experience from viewing a video. Sneed saw an opportunity to increase Rocchi's profile, and says that even his Edelman contacts were skeptical of promoting this unknown quantity as a movie expert. But the company went ahead with an eight-city media tour for Rocchi, and Mr. DVD's reputation was made. Profiles of the ultra-polite Canadian movie trivia buff began appearing. Rocchi has since toured some 30 cities, and is now heard regularly on 30 radio stations every week giving The Netflix DVD Report, reviewing the latest movies. The broadcasts are syndicated each month to about 600 stations. His columns appear only on the Netflix website, but this fall Rocchi's reviews will also appear on the website of a major monthly magazine. Rocchi's persona drove the company's "Easter eggs" promotion last year, which coincided with the religious holiday, but related to the hidden freebies that programmers include on DVDs and CDs. Netflix did a VNR on Easter eggs that aired on over 40 stations. Entering new territory The company faces new challenges now, following its IPO in May. Now a publicly traded entity, it can count on being in the business pages for updates on its results, but must continue to drive DVD adoption. The in-house PR team has expanded to three people, including one who works principally with Rocchi. The CFO handles most of the company's IR work, with help from the PR team on communications issues. Netflix could also have significant competition soon in the name of Blockbuster, which has hinted at the possibility of launching a subscription-based DVD service. Kilgore says she welcomes competition in the field, but does not focus on it day-to-day. "It's not under my control," she says. "We focus on things we control, like our value, convenience, and selection." Users outside of the Bay Area have sometimes complained of slow delivery. To answer that, Netflix has opened 10 new regional distribution centers across the country, expanding its capabilities far beyond its first facility in San Jose, CA. Hastings traveled to several cities to meet the local press after the announcement. Netflix is also keen to maintain its edge as the "cool" choice in DVD rentals, and talks between the in-house team and the agency these days frequently focus on that theme. "We took Netflix from a "what you do is weird" story to being one of the coolest products on the internet," Snell says. "Now, how do we capitalize on this cool factor? ------- Netflix Senior Manager, public relations Rick Sneed Manager, public relations P.H. Mullen Associate Manager, public relations J.C. Carson PR Agency Edelman

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