Some thoughts on the Netflix changes

UPDATE: The Oatmeal has explained this in a comic better than I could in a blog post. You can read the comic here (thanks to Leonardo for the heads up.)

Netflix announced plans today to spin off their DVD rentals into a new company called “Qwickster” that will include video game rentals to compete with companies like Gamefly, GameStop, etc.

Last week Netflix announced subscriber losses that caused some investors to sell their NFLX stock. Dan Frommer made a good observation that most of the subscription losses they announced came from the DVD rentals and not the streaming service.

I think it’s safe to say the future of the entertainment industry is in streaming content online, not mailing DVDs. We’ve reached the tipping point where high speed internet access has penetrated enough households to make streaming a more viable distribution channel than mailing physical DVDs through a financially troubled US Postal Service.

According to an email sent to all subscribers (and posted on the Netflix Blog) by Reed Hastings, Co-Founder and CEO, of Netflix:

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

A few thoughts on this statement:

  • Marketing one company is much easier and cheaper than marketing two companies. Seems like a weird choice to use “marketing” as one of the reasons to make this change.
  • “Qwickster” sounds like the name of a cheesy 2001 internet startup selling chocolate milk online, not a profitable, well-established, 14 year old company. As Gruber suggested, why not Mailflix? It keeps the branding consistent and sounds far more professional.
  • Creating a separate company for their DVD business (and naming it something COMPLETELY different) makes it a lot easier to sell off that part of the business if they ever wanted to.
  • Forcing their customers to go to two different websites to search for a single movie is not a user-friendly experience. When I search Netflix for a movie, my first preference is to stream the movie. If the movie is not available for streaming, I’ll put it in my DVD queue and get it mailed to my home. Right now, this can all be done from single webpage. In the future, it appears that I will have to visit two different websites to search for a movie (one for streaming and one for the DVD).

John Wilker made a funny (because it’s true) statement on Twitter this morning about the changes:

For the record, I still think Netflix is a great service for the cost.  Basically for the price of a couple lattes, I can stream an unlimited number of movies to my home in a month and alternatively have DVDs mailed if I choose. That’s a pretty good deal.

However, by making things a little more difficult for the customer, I may drop the DVD service altogether. I haven’t decided yet.

And maybe that’s what Netflix wants in the long run anyhow.  There is more profit in streaming movies digitally than mailing physcial DVDs anyhow.

If you are a current Netflix DVD subscriber, will you keep the service after they make these changes or will you go streaming-only?

As a side note, newspapers are dealing with similar issues in transitioning from an old distribution channel (print) to a new one (digital).  Gigaom has an interesting comparison between the challenges Netflix faces and the ones newspapers are facing now too.

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5 Responses to Some thoughts on the Netflix changes

  1. Jake says:

    I dropped DVDs last night. Might also drop streaming soon unless their catalog improves markedly in the next couple months.

  2. Dan Pacheco says:

    I wonder if Netflix is trying to intentionally hurt studios’ DVD rental royalties so the studios have to provide more streaming content to Netflix in order to survive. Netflix recently lost Starz — a huge loss when you see what Starz was sending them. Spinning DVDs into a separate service with a lame name could be a way to make Starz need Netflix more in the future.

  3. Dave says:

    Dan, I hadn’t thought of that, but that makes way more sense than “accidentally” choosing a name like “Qwickster.”

  4. Dave says:

    Jake, I’m hovering between dropping the DVDs or not. The streaming selection stinks for movies within he last 5 years or so (which is why I’ve kept the DVDs this long).

  5. Chaz says:

    For the record, I dumped both DVD and streaming when they jacked up the price. It was not just the case of there was hardly anything on streaming I wanted to watch ( or that when I found something one week it was there the next…poof gone with the promise of more of that to come in the future). Nor was it the occasional missing/scratched or in one case totally shattered dvd. It wasn’t having the cash in my wallet compared to a latte or two by someone whose monthly salary out strips my yearly one (I love being told how little I can live on by people whom earn like that). It was a matter of principle. To me, it wasn’t right raising my rate after years of purchasing a brand by the amount and the manner it was done. So, I returned to mama cable and HBO (and HBOGO). Yes I pay more for my services now, yes I am happy ( and no doing something on a matter of principle does not mean the end result has to be logical after all, many wars have started over a matter of principle)

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