Netflix CEO Reed Hastings Says Company Has 'Sincere Regret' Over Handling of Service Changes

Sept. 26, 2011— -- Netflix "moved too quickly" in making changes to its subscription plans, which caused widespread outrage among its customer base, Netflix CEO Reed Hastings said in an exclusive interview with "Nightline."

"We moved too quickly," Hastings told ABC News' John Donvan. "We didn't give it enough thought. We didn't give it enough explanation, enough integration, and you know, that's legitimately caused our customers to be angry."

Watch the full story on "Nightline" tonight at 11:35 p.m. ET

The company caught vicious backlash from subscribers after Netflix announced last week it was separating its DVDs-by-mail and live streaming services. The announcement came after Netflix had said in July it also would be raising its subscription costs by as much as 60 percent, starting Sept. 1.

"We made a big mistake in the way we communicated it," Hastings said. "We're apologizing, and we're trying to build this great service for [our customers]."

Since the announcements, more than 600,000 customers have canceled their subscriptions.

"It's a big setback, there's no question about that," Hastings said.

Netflix's blog and Facebook page became inundated with negative comments and Netflix's stocks plummeted 50 percent.

"It's reading some of those comments that made me realize that I really did regret the way that we handled that communication," Hastings said.

In response, Hastings, who was named Forbes' "2010 Business Person of the Year," sent an apology email to Netflix's 24 million customers, starting the letter with, "I messed up. I owe you an explanation."

Hastings also announced last week that the company's DVDs-by-mail service would now be called "Qwikster" and Netflix would be just for streaming.

"It's not a marketing tactic, OK?" Hastings said of the letter. "It's an expression of our genuine, sincere regret about the way we handled the communication with people. We've worked really hard to serve and built a lot of trust and loyalty, and we didn't respect that in the way that we wish we had."

But another hiccup surfaced: Netflix didn't secure the @Qwikster Twitter handle rights before Hasting made his announcement. It is currently used by a man named Jason Castillo.

"I think we were just moving too fast," Hastings said. "Sometimes, the thing that makes you great, your speed, can trip you up, and so, you know, we need to be a little bit more thoughtful as we move."

Hastings told Donvan that while his company didn't communicate the changes with its customers well, the decision to split the company in two was the "right move internally."

"There's no question," Hastings said. "In terms of customers, what we should have found is more ways to make it transparent to the customer, so it was less of a change.

Established in 1997, Netflix launched its DVDs-by-mail-only service in 1999, then incorporated the live-streaming service last year. When Hastings spoke with "Nightline" in 2009, even then he said he knew that streaming would become a huge priority.

"Eventually in the very long term, it's unlikely that we'll be on plastic media. So, we've always known that," he said at the time. "That's why we named the company Netflix and not DVDs by Mail."

And that hasn't been the end of Netflix's worries: Other heavy-weight media companies have used Netflix's recent mishaps as a springboard to launch their video-streaming ventures.

Amazon.com Inc., which launched a free on-demand video service to its Prime shipping members in February, signed a deal with Twentieth Century Fox today to stream Fox movies and TV shows, including the popular shows "24" and "Arrested Development." The company already has a deal with CBS Corp. to stream 2,000 TV show episodes to its Prime members.

Even Blockbuster, which Netflix forced into bankruptcy court and was bought out by TV provider Dish Network for $234 million earlier this year, is getting back into the game. Blockbuster announced a new DVDs-by-mail and Internet video streaming bundle for $10 a month -- roughly what Netflix used to charge users before it raised its prices.

Not to mention Netflix has been competing with the likes of Apple Inc., Google Inc. and Hulu.com.

Despite it all, Netflix continues marching on. The company signed a multi-year licensing deal with Dreamworks today to stream its movies, including "Shrek" and "Kung Fu Panda," and TV specials, starting in 2013.

ABC News' Ned Potter and The Associated Press contributed to this report.