Opinion: Is Netflix Now Set Up For Failure?
25 million Netflix members awoke to rather unexpected news from Netflix this morning. A strange explanation of a business split and price hike. You may appreciate it or not, but I am wondering, is Netflix now vulnerable enough to be replaced?
There are few marketing messages and press releases that can be taken at face value in a situation that is best described as damage control.
If you get an apologetic email from the CEO of one of the most admired Silicon Valley companies, an email that extends to a blog post, it's easy to expect you might respond in an emotional manner. This would be especially true if the email and blog post start with "I messed up. I owe everyone an explanation." Netflix members should read the complete blog post to learn how Netflix will change. To summarize, Netflix will become a streaming-only business, while DVD by mail service moves to an entirely separate business entity named Qwickster. Each business will have an independent website with its service fee(s) charged separately.
Within the blog post, Netflix CEO Reed Hastings spent 13 paragraphs explaining and justifying the price hike without making immediate sense. The short version is that the separate charges for DVD and streaming preceded a separation of the businesses and that by being separate, the two businesses will be able to improve. All this got me thinking. In a time when most businesses are integrating their services, Netflix is following a decentralized model that is difficult to reason with. In a best case, many Netflix users will be confused. They will be angry or happy. They may like the new Qwikster logo or they may hate it. In a worst case, they may be offended as they have been out of the communication loop before. I don't quite believe that Hastings is treating customers in the way they deserve: If he is going to the great length of providing an "explanation", it should be complete and offer Netflix customers clear-cut details.
Today's explanation that the separation is necessary to make both of its services better reminds me a bit of an evasive parent who answers a child's question with "because I say so." Netflix has every right to make any business decision it wants, but it has set itself up in a scenario where it should be playing with an open deck of cards. There is quite a bit of soothing PR strategy in Hastings' email, in his blog post and even a video he posted. However, the PR is backfiring at this point, leaving Netflix to face an outpour of emotions from media and customers it can’t control.
The strange part of this whole disaster is the fact that the reasons for Netflix' strategy change have been discussed for nearly a year, even by Hastings itself. With streaming service becoming more and more successful, having grown to more than 9.8 million streaming-only customers (of a total of 24 million users, of which 12 million have both streaming and DVD subscriptions), Netflix has found itself in mounting legal dilemma that eventually would force the separation of the two businesses.
On the DVD side, the first-sale doctrine applies as distribution law and enables Netflix to rent every DVD copy it buys. It could go into any Best Buy or Walmart, buy hundreds or thousands of DVDs, and turn around and rent them the same day. However, the first-sale doctrine does not apply to streaming content. Each title, or each library, needs to be negotiated separately. Rumor has it that movie studios were asking not just for fees per library, but for a revenue cut per user, while Netflix was interested in a fee per user who actually accesses streaming content. Paying a revenue cut from every user, even if they do not access streaming media, is business suicide. Remember, there are 2.2 million Netflix customers who do not stream movies at all, with an expected 12.0 million who may be categorized as occasional streamers since they stream and receive physical DVD copies. Can Netflix afford to pay streaming fees for someone who may not watch? No. Separating the DVD business and the streaming business makes sense from this perspective because two different legal models and two different license models apply. I will give Netflix the benefit of the doubt that the licensing scenario in the background turned into an unmanageable mess that put their entire business model at risk, forcing a radical change in the end. However, Netflix only has itself to blame for the forced change. The integration of streaming was an expected featured in Netflix and it is always more difficult to take a feature away than to add a new one. In hindsight, free streaming may eventually turn out to have been a mistake from the very beginning.
The current communication may be perceived as humble, but those who think about it closely, may see the very same arrogance of Silicon Valley that got Netflix into this problem in the first place. There is an apology for not communicating the reasons for a previous price increase, but there are no words to explain the reasons for the price increase, or the split and new name for the DVD business. Hastings leaves Netflix consumers with quite a bit of speculation - Why is the DVD business renamed and not the streaming business? Does that mean that Qwikster will slowly fade? What content will Netflix get in the future? – None of which is a good thing. We are told that Qwikster will get video game rentals (for an extra charge), but there is no information on streaming content, which is a big issue since Starz, Netflix' most important content provider at this time, is pulling out early next year.
Netflix has introduced uncertainty for its customers. If Netflix is caught between a fire storm of customer outrage and content cost structures, today's communication could enter marketing text books as one of the greatest PR blunders ever. At the very least, Hollywood now knows that Netflix needs content for streaming service to survive, meaning they (Hollywood, not Netflix) can start controlling the cost of its content even more.
Has Netflix set itself up for failure? Possibly. The only way out of this one is honesty with its customers; today's blog post wasn't a good example of that. On the business side, Netflix may not have had much choice.
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Hopefully, Netflix can get "content" creators to come straight to them. If that happens, Netflix wins. And honestly the production studios win because their content will get viewed more.
I am a Netflix streamer and I am very disappointed so far
More and more movies are dvd rentals
Some that are way over 10 year old movies
Seriously "The Crow" and other movies that have been out for close to twenty
years or more NOT available for streaming?!
I have Comcast cable and some of these movies play on second rate
cable channels almost every weekend
I understand a brand new release but OLD movies?
They purposely target popular older titles so they think you will get the DVD option
I am going to start looking at alternatives soon like Hulu+
Netflix better get their poop together
Qwikster??? Did they giveup trying to figure out a name? Hell my 9 just said "they could have called it Flix"...
Netflix sucks. Wake me when they get true 1080p resolutions with 5.1 sound.
Another opinion article by Wolfgang Gruener. Why are these opinion articles bolded to seem as if they were actually important news?
Qwikster??? Did they giveup trying to figure out a name? Hell my 9 just said "they could have called it Flix"...
Flix is already a TV channel, they wouldnt be able to use that I dont think. Though I agree qwikster is probably the worst name ever.
Another opinion article by Wolfgang Gruener. Why are these opinion articles bolded to seem as if they were actually important news?
"Opinion: Is Netflix Now Set Up for Failure?"
It says its an opinion article in the freaking title, whats your problem with it?
First off I'll start with this. I'm sick and tired of reading all of these rants from pissed off, upset article writers who might as well be bloggers by allowing them selves to publish things like this. Just because they do not like the change to the pricing model. Seriously, just because you can complain and whine to your entire site visiter base does not mean you should. Get over yourself already.
Second, I would like to clear up a few misunderstandings that seem too vast of a concept for some to grasp properly. So, in the past they charged about $8 for the streaming service. If you wanted to also order DVD's you would need to pay and additional $2 to gain that privilege. So then, let's sum this up. You just want to stream? Pay ~$8. You want to stream and rent DVD's? You pay ~$10.
But wait, what if I only want to get the DVD's? Pay~$10.
Wait... what?
Yep that's how it worked. So then, on to the present times. After a lot of research and study and comparing notes, they discovered there were fewer and fewer people wanting to stream and rent movies. At the same time there were fewer people wanting to pay for streaming when they only wanted to rent the DVD's. Also, there were a few hiccups with liscensing and some boycotting from puplishers because they seem to not like streaming services very much because they have trouble understandng a virtual model vs. a simple buy a DVD and we make "x" amount of $ from it. So, to make there system better and remove the stigma affecting the publishers, they will separate the business models into two. From streaming with an addon rental feature, to a streaming service and a new separate rental service.
So if you want to stream, it costs about $8. If you want to rent it costs about $8. Who is losing? Oh the few left, according to netflicks study's and usage data, that want to both stream and rent DVD's. In which case it will cost you another ~$6 a month.
Seriously, if you don't like it then cut back on your cell phone bill a bit that I'm sure it costing you much more than it should because you had to have those extras that you barely use. Better yet, cancel the HBO or Showtime or Stars services which cost just as much or more each!
Anyways, stop crying to us because you are upset. They are gunna do this because they have the data that says it's a good idea. You keep this up and you'll just scare everyone away and then there will be no Netflix and more people out of work.
Oh, and hulu+ sucks. It's not like the hulu on the net where they have a bunch of stuff with adds. It has waaayyyyyy fewer options. It's as bad as Netflix and worse cuz in some cases you have to see adds even on the + pay service.
I am a Netflix streamer and I am very disappointed so farMore and more movies are dvd rentalsSome that are way over 10 year old moviesSeriously "The Crow" and other movies that have been out for close to twenty years or more NOT available for streaming?!I have Comcast cable and some of these movies play on second ratecable channels almost every weekendI understand a brand new release but OLD movies?They purposely target popular older titles so they think you will get the DVD optionI am going to start looking at alternatives soon like Hulu+Netflix better get their poop together
I get over the air HDTV only. Netflix has been a cheap alternative to paying monthly cable subscription fees while are still much higher,. And I don't have to deal with all the commercials.
Surprise! Another pessimistic Wolfgang Gruener, bold-title, article.
Another opinion article by Wolfgang Gruener. Why are these opinion articles bolded to seem as if they were actually important news?
I suppose I'm to blame for that...
A few weeks ago, I sent a letter to Chris Angelini pointing out some things I felt were out-of-order within this site's news section. One of those things just happened to be how Wolfgang's articles didn't follow the fact-based chronological presentation of an event format typical of news reporting. Instead, much (if not all) of Wolfgang's writings could easily be considered an editorial opinion piece. As such, Chris and/or Marcus saw fit to designate such works by Wolfgang differently, and this is the method which was chosen to do so. I suggest readers think of it more as though Wolfgang has an editorial column within the Tom's news section, just like the kind newspaper editors around the world often have.
I'm certain there are readers who don't like it, but perhaps that's because you don't understand why it was done. Maybe what I've said will shed a little light on things for you. You can blame me for it if doing so will make you feel better. (Everyone loves to point out a culprit, right?) I feel it's a step in the right direction for improving the overall quality of the entire news section to designate opinion and editorial writings differently.
His article does more to make me understand why Netflix split their business than the apology letter I got in the email. In the end though, I do not really care that Netflix is splitting their business. What bother me, and I imagine a few other users, is that rate hike from a business model that was already profitable while providing LESS service (loss of Starz on streaming side). Now, if service were to somehow improve with the rate hike, I could understand it, even if I did not think it was worth it. Now, I am looking for a replacement.
I don't have any problem with a CEO saying, "I messed up." In fact, I think the guy deserves recognition for saying so. Honestly, when is the last time you heard ANYONE in corporate America admit fault? The problem I have is a 60% price hike with a "If you don't like it, don't let the door hit you in the ass on the way out - our marketing says we'll be fine" attached to it. Add in the fact that we've gotten nothing in return for it(less really - Starz) and I feel like I pretty much just swallowed a spoon of vinegar. Now, we're splitting the services under 2 different companies... er... huh???
"I get over the air HDTV only. Netflix has been a cheap alternative to paying monthly cable subscription fees while are still much higher,. And I don't have to deal with all the commercials."
I see your point and agree with it though I dont know why you had to point me out
I have a ten year old daughter that cannot live without Disney and Nickelodeon (the horror!)
and a wife that loves TLC and HGTV
I would be okay with a stripped basic cable or a good house antenna
I do like the perks of Comcast like Xfinity Streaming TV and also the free Nortons 2011
(top ranked among all of the PC mag reviews I have read for pay service)
plus I can use the free Xfinity Wi-FI hotspots that are all over
so for $130 TV/Performance Internet up to 15mbps (?)/phone with free LD
with the extras like the WiFi etc
it is worth to me not to hear my women in my life complain
Wife not happy
Me not happy!
Pretty anti-competitive...
Phone and cable providers provide "TV" and put bandwidth caps in place where rival services operate. When you watch your "on demand" movie through those providers, they do not limit the number of movies you can watch.
So yet again another highly paid incompetent CEO apologizes and we are supposed to think this is noble on his part. Mr Hastings you are another executive turd who likely only has his job because he "knows" someone in the business, not because he EARNED the opportunity.
Hastings should be fired for incompetence!
personally theres to much competition in the dvd market right now .. with red box and blockbuster kiosks every where its so much cheaper and easier to just go to the local store swipe your card and for 1.00 you get a movie rental for the night some even carry video games so thats a big one up on them .. i already dropped the dvd part of it .. and now i only do streaming .. personally i think they lack a lot of content hulu has them beat in a lot of deparments and a lot of it is either free.. or dont qoute me 7.99 i think a month for the hulu + .. and they have way more content .. so its a tough place to be if you ask me personally if they came out with more childrens content / anime / how too guides that would help there service quite a bit.. and another thing its hard to tell when they will add new content .. so its like a mistery magic list that just shows up and then dissapears a few months later..
The guys at Blockbuster must be celebrating all night long after that announcement. Blockbuster already offers a better service then Qwikster, they dont charge extra for Blu Ray or Video Games and you can exchange your discs in a store. Why would you pay more for Qwikster? You wouldn't.
Then you have Blockbuster setting up it's streaming service and getting the contract with Starz, pretty much guaranteeing they will have a better streaming selection then Netflix. Oh and you would hope a site design that isn't all retarded like Netflix made theirs.
So come 2012, I think Netflix is going to fail hard, offering 2 worse services that require 2 different accounts at higher cost then their competition. They should fire Hastings and figure out a way to get their service back to the quality it had in 2010.
Amazon Prime eats netflixs for lunch. Amazon Prime is not only cheaper then netflix per year but they release the latest movies on stream faster.
Yeah... this is the kind of articles Gruener should be writing. Not discuss the "death of PC".
I'm really amazed by how much everyone talks about Netflix. What, no other way to get movies? DVD store? Why does anyone care, anyway? How much time do people spend watching movies?
Wolfgang, stop posting articles. You're a twat.
They were screwed the moment they got popular. Now all hollywood wants to do is bend them over and take them for a ride all the way to the bank. I have a feeling they will eventually fold, once hollywood is done strangling them for the crap they are willing to let them stream. Is a shame really, becuase once they are gone, people will end up going back to pirating, and then the greedy fucks will get nothing.
I never liked Hulu, because even if you pay, you are still force fed ads, which at least you dont have to deal with on Netflix.
They could have set up a structure where both the services are different legal companies under a corporation. It would have the same effect. They also could have changed the two services titles a lot better. For example Netflix: DVD Bam! there you go, new business title and it's still netflix...but just DVD. The logo could be Netflix, with the words DVD smaller and slightly overlapping the bottom part of "flix" in the word Netflix. How could they not figure that out?
When Blockbuster get's streaming, and their library is halfway decent, I'll be leaving Netflix. As it is, if I want to start getting DVDs again, I'll sign up for Blockbuster.
First off I'll start with this. I'm sick and tired of reading all of these rants from pissed off, upset article writers who might as well be bloggers by allowing them selves to publish things like this. Just because they do not like the change to the pricing model. Seriously, just because you can complain and whine to your entire site visiter base does not mean you should. Get over yourself already.
Some people need to stop attacking the messenger. Seriously, just because you can complain and whine in the comment section doesn't mean you should. Get over yourself.
Netflix has reported about 1 million lost subscribers since the price hike. This isn't because of rouge bloggers expressing opinions shared by many others, it's because the company is pissing off their customers.
The last paragraph pretty much sums it up. If hollywood pushes too hard it will just increase Piracy and both will lose.
Over here Love film needs something like this tbh. The DVD rental is pointless and a waste of money IMO but the streaming charges £2 per film ontop of monthly fee and doesn't have a lot of titles available. I would happily pay full for streaming only if they actually had the business model in place.
I have something for all the people complaining about Hulu+ still having ads:
What about cable/satellite TV being 1/3 commercials? I mean REALLY think about it. You are also paying $40+ a month.
Ads are NEVER going away and only going to get worse as time goes on.
Also, with Hulu, it's only three 30 second commercials for a whole 21 minute episode. You can also have ads tailed to you. When you watch the exact same episode on TV, you are watching 9 minutes of commercials. Even if you have it recorded on your DVR, you still have to spend about 30 seconds to go through the 3 minutes of commercials each time.
And call me crazy, I for one like ads/commercials here and there. It lets me know new things coming out, etc.
Hulu will always have the more TV than Netflix. While Hulu isn't perfect, all the BIG NAME shows are up the same day or next day of it's air date.
YES, The bottom line is that Netflix had something unique with DVD & streaming all in the same place for one great price. Now they are just like everyone else, so why would I ever what to use them? Now it is all about whoever is the cheapest.
Then they pick a name like "Qwikster" Not to be Confused With: Quixtar, QuickStar, Kwikster, Quickster, Kwik Star, Quik-Star, or Kickstar. WTH
NetFlix has a lot of issues. I laugh out loud at their plan to enter 3d world markets in Latin America, and I laugh even harder at the hard nose "content providers" who are giving Netflix such a hard time over costs.
Why? ? ? Well you can torrent any movie you want down here with no fear of reprisal, and on top of that you can buy brand new movies on any street corner for a dollar. And I don't mean new DVDs, I mean brand new at the theater movies.
No one enforces homicide laws down here, much less patent laws.
Netflix sucks. Wake me when they get true 1080p resolutions with 5.1 sound.
get an apple tv...love mine
Amazon Prime eats netflixs for lunch. Amazon Prime is not only cheaper then netflix per year but they release the latest movies on stream faster.
Amazon prime has some advantages (free 2 day shipping) and some disadvantages (not 'family friendly' in that there are lots of 'for pay' movies that can be accessed by kids that can rack up a huge bill, unlike Netflix, where it is either available or not...)