I have to admit – I’m really confused about Netflix. I have been a customer of theirs for a long time. I didn’t understand their large price increase announced 2 months ago (that just went into effect Sept. 1) and now I definitely don’t understand why the company is splitting its DVD and streaming services into 2 companies, announced in Reed Hastings post yesterday (http://blog.netflix.com/2011/09/explanation-and-some-reflections.html). I guess the new “Qwikster” is for its antiquated DVD customers (I’m one of them) which doesn’t exactly make me feel special – or even like a customer Netflix wants anymore. I get that streaming is the future, but DVD isn’t dead yet.
I am also confused by Reed Hasting’s apology. It didn’t really seem like an apology at all – other than admitting that he should have explained sooner why Netflix raised their prices. But he didn’t really do anything about it and the apology seemed half-hearted. Why did it take so long? He’s a smart guy. There are lots of smart people at Netflix. He admitted that Netflix made a bunch of mistakes but he didn’t correct any of them. He could have bundled the DVD and streaming services for a bit of a discount – but he didn’t. Then the announcement of the new Qwikster brand for the DVD service just seemed even more out of place.
I am just confused.
When Netflix decided to raise its prices and charge separately for their DVD and streaming subscriptions, I debated what I was going to do. I finally decided to just go with the DVD service. I realize that I write a lot about online video services and have even developed strategies for companies around it but despite that the Netflix service doesn’t have enough content to (yet) justify $7.99 per month – for me. I like watching new movies and old seasons of TV shows and these aren’t available on the streaming service. I guess this just makes me a Qwikster customer, but now I feel a bit abandoned by the brand of which I have been loyal (and even evangelized) for several years.
I realize that Netflix has significantly more streaming customers than DVD customers (21.8 million vs 14.2 million expected in Q3 2011) but both are interested in subscribing to content. They just happen to like consuming content different ways. Many DVD customers are likely to switch over to streaming as Netflix licenses more content they want. I know I will – or I’ll go to some streaming service. I love the fact that it’s available through my Internet-connected Wii, on my computer, and on my iPhone. I just haven’t been hooked (yet) on the content. I think a lot of consumers will subscribe to streaming in general as more content becomes available.
This new strategy of separating out the DVD and streaming service is alienating many of the customers that got Netflix where it is today. One key difference between now and when Netflix started is there are more options – especially for streaming. Amazon and Hulu are getting in the game as I’m sure will others. Microsoft announced Xbox 360 TV, so a subscription service isn’t out of the question for them. While Netflix certainly is ahead of their competitors, others can quickly take their place. Netflix displaced Blockbuster. Couldn’t someone do that to Netflix?
Reed Hastings talked about how he has been afraid that Netflix would end up like AOL or Borders as the business transitioned from DVD to streaming. That fear is very fair as that has happened to many companies as they transitioned from one technology or business model to another – but the strategy of spinning off the legacy service to an unknown brand name just doesn’t make sense. Does that means Borders should have created a e-book reader, called it Borders, then changed the name of the bricks and mortar bookstore? Changing a name doesn’t make a company. It’s the service that does.
I do get that streaming is the future and Netflix should put a lot of resources towards it as consumers do want that in the long run. It is the future of content consumption. I just can’t get past the new branding.
I also don’t get why there are going to be two separate websites for Netflix and Qwikster. This means that people who have both services have to go to both sites to look for content – and rate content. One of Netflix’s most valuable features has been its recommendation engine which helps consumers discover new content. Is a customer on the DVD service that much different than a customer on the streaming service? Just because people watch content differently – and on different platforms – doesn’t mean their content choices are going to be different. Integrating the sites makes sense – especially if Netflix wants to convince their DVD customers to migrate to streaming in the future.
Netflix has long been a respected brand. That now appears to be changing a bit as their management team develops strategies that just don’t make sense to consumers. Consumers understand that prices go up but they don’t understand when their loyalty is not rewarded and that branding changes dramatically. Netflix has a lot going for it – a deep catalog of DVD content, significant streaming deals, a newly launched kid’s area, international streaming services, and a well-known brand. I hope they figure out their mistakes and listen to their customers before someone else takes advantage and displaces them.