Netflix Fractures, Creates Qwikster

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September 19, 2011

You’ve likely heard the news today, that Netflix is fracturing itself into two companies. The original, DVD-by-mail delivery service company will become Qwikster, while the Netflix name will be reserved for the video streaming arm.

Given that Netflix has already lost a million customers recently by splitting their plans and charging for discs and streaming separately (taking the base rate from $10/month to $8 + $8 = $16/month, if you still want both services), this seems like the organization is playing catch-up bureaucratically with decisions already made. The new name is stupid, yes, and sounds like it fell through a time warp from last decade, but that’s a minor problem. I don’t have a dog in this fight, since I’m not a customer, and I don’t plan to become one.

I’m just thinking of routine users like my parents. They tried streaming once, when I told them it was free with their account, and they promptly concluded that they wanted to watch movies on their TV, not their computer. They’ve been happily using a simple Netflix plan the same way for years — why should they have to switch websites and how they do things now, when they’re happy with the product they have? THAT strikes me as an issue, because any time you make people think about their habitual choices, you risk them deciding to change or eliminate them.

Especially when you make everything more complicated. Separate websites means having to maintain separate lists of movies you want to see, and separate credit card charges every month (if you do subscribe to both). The Brads webcomic summed it up nicely. Sometimes visuals are the best communication method. Click the image to see the whole thing.

Company founder and CEO tried to explain the logic in a message to customers, but his priorities are clearly not theirs. He thinks the backlash is because the company didn’t communicate enough.

now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.

I think increasing prices by 60% is a hard message to gain acceptance for, no matter how much or how well you talk about it, and now, you’re making performance more difficult for existing customers. Splitting may be best for the companies, especially if one believes that the future for each looks very different right now, up to the point of eventually competing with each other, but it’s inconvenient for users. They gain no benefit, only confusion. Still, if this is a better choice for the company, the CEO is doing his job in placing their survival above customer wishes.

Update: (10/10/11) Netflix has changed its mind — the company is staying one for now, no splitting, no Qwikster.

10 Responses

Suzene writes:

September 20, 2011 at 12:16 AM

I got a Netflix account about two months ago, just in time for the nonsense to start. Some aspects of the new announcement I do like — the ability to rent console games and movies from the same company is a big plus for me. I also wasn’t terribly put out by price hike; for the moment, there’s plenty on their streaming service for me to watch if I want to plop down for a spontaneous flick, I have a healthy queue of DVDs, and all of the video entertainment I need for $20 a month is a better deal than cable. But splitting the service between streaming and DVD is, IMO, still badly timed, as it’s more hassle for customers still smarting over the price hike. This isn’t the way to build confidence in the new business model.

Ed Sizemore writes:

September 20, 2011 at 7:12 AM

It seems that Netflix has been looking to get out the DVD business for at least a year. It’s no surprise that the “Netflix” name is going with the streaming company. I suspect we will see Qwikster up for sale very soon.

With all the other streaming and On Demand options out there, why should I keep my Netflix account? That’s what customers are really saying, Mr. Hasting.

hardtravelinghero writes:

September 20, 2011 at 8:38 AM

I am a user and I’m not happy about the split for the costs most of all. It’s a crap economy and the company wants another $6 if I want both services?

I believe I’d read in Wired, about a year ago, the founder never wanted to do the mailing feature and that ideally rights to stream everything on DVD would be purchased, but we know this has not happened.

Johanna writes:

September 20, 2011 at 8:56 AM

That’s the biggest hurdle I see to all this — streaming may be what the company wants and maybe even what the users want, but it is NOT what the studios want, especially not at one low monthly price. (They want to sell movie-by-movie at excessive rates.) And they’re the ones with the rights to the content, which they’re already pulling off the service.

Chris G writes:

September 20, 2011 at 9:39 AM

And on top of all that, Netflix is pretending the offerings via streaming are as deep and recent as those available via DVDs. But they’re not, not by a long shot. Streaming is great for comfort shows (Cheers, Star Trek series, etc.), kids’ programming, and finding weird older movies but if you’re, say, the parents of a small child and so make it to a theater maybe twice a year, streaming is never going to let you see recent movies in a timely fashion, especially once Netflix’s deal with Starz ends in a few months.

Thad writes:

September 20, 2011 at 11:28 AM

@Ed: Netflix still has, hands-down, the largest streaming library for the lowest price. That’s why they’re confident enough to tell their customers where to stick it and just accept the million-subscriber loss.

Of course, “largest library for the lowest price” comes with the usual asterisk. The largest library for the lowest price is, in reality, Pirate Bay, and Netflix’s audience is people who would rather pay a monthly fee than engage in piracy. Of those, far, far more make that decision based on convenience than on any kind of ethical objection to piracy (or fear of being caught at it).

In short: Netflix may weather this storm, but had better not raise its prices again before 2013.

Lyle writes:

September 21, 2011 at 8:54 AM

I agree with a lot of the complaints here. I would add a couple advantages Netflix has for the moment.

- Thanks to the being available on newer TVs and video game consoles, it’s much easier to watch streaming Netflix on your TV.

- Hulu Plus is available on some video game systems but if your internet connection isn’t consistent Netflix does a much better job of handling the bumps. When we tried Hulu Plus on the Xbox, it took longer to load videos and the videos were more frequently interrupted. This made the ads on Hulu more irritating since they were another badly-handled interruption.

For what Netflix Watch Instantly does, it does it the best, though that probably works more as goals for its competitors to reach. The Netflix needs to work to stay ahead of the pack.

The split is a huge mistake because it really hurts the convenience of Netflix. Their streaming movie choices are going to get worse. Right now, the moves not on Watch Instantly are still available in another format. The split means there are a lot of movies Netflix won’t have at all. It turns them from a bookstore willing to special order that title you can’t find into one that won’t look if your book is in their system.

Netflix is trying to deal with the closing of movie titles by emphasizing TV* and it could make the product continue to be worthwhile… but only if there’s still a way to get all the other stuff.

* I think the studios are wrong to see Netflix as a threat because of this. At the least, they should look at the service as a way to make money off of titles they don’t think they can sell as a DVD set, shows like Terriers or Beauty & the Beast. You can provide plenty of entertainment that way and it’s another way to sell the content.

The studios are already looking a cloud products as the next step from streaming, except they can demand people buy the right to stream each movie or show, so not offering a complete library Netflix becomes a lot weaker.

Chad writes:

September 21, 2011 at 2:25 PM

“…Netflix’s audience is people who would rather pay a monthly fee than engage in piracy. Of those, far, far more make that decision based on convenience than on any kind of ethical objection to piracy (or fear of being caught at it).”

You know that for a fact?

I’m one of the people who doesn’t use torrent sites because of an ethical objection to piracy, but I have no idea whether or not I’m in the majority on that, and neither do you.

James Schee writes:

September 22, 2011 at 12:33 AM

I was in my local Blockbuster Video today, and they are campaigning like heck to get the lost Netflix customers. With both an in store program that allows you to rent as many movies & games a month as you want for $14.99. To a mail order program that also allows you to exchange movies and games at stores, plus doesn’t charge extra for renting BluRay and video games like Netflix or whatever they are calling themselves plans to.

Johanna writes:

September 22, 2011 at 7:26 AM

You know, a monthly Blockbuster fee would be great — if not for the fact that I don’t know where or if my city still has one!