Monday, September 19, 2011


When I got an email in my inbox this morning that said, in the first line, "I've messed up," I thought it was going to be that long-awaited mea culpa from an ex who had broken my heart long ago.  But no, it was a message from Reed Hastings, CEO of Netflix, on how he could have communicated better about the price hike.

Well.  Okay.

But still, prices went up for a service I was happy with.  I stuck with the DVDs and got rid of streaming because honestly, Netflix's offerings for streaming are pretty weak.  And so it surprised me when Hastings announced that the direction of Netflix was to move more into the streaming sector, and portion off the mail-order DVD sector into a new business called... Qwikster.

Yeah, it's a bit of a headscratcher for me.  For one thing, the name makes me think of this:

But also, it's pretty much brand suicide to take a beloved service and raise the price, while making it more complicated.  You've botched your brand promise.  Now you're seen as unreliable, expensive, and untrustworthy.

I feel for Netflix.  They spend a lot on postage to deliver us our DVDs.  Plus, there's been a lot of buzz about online video, streaming TV, and all the rest, so it makes sense for the business to go this direction.  However, I think the transition is reading as haphazard at best.  It would have made sense to hold off on this particular bent until they had more to offer on the streaming channel.  Right now it looks like they want to get out of the DVD by mail business altogether, and that's going to alienate a lot of brand evangelists who got into Netflix in the first place because they liked that model.  They run the risk of severing off their bread and butter consumer, and that's problematic to say the least.

CNN Money points out that their stock has already taken quite a dip.  They face some stiff competition from Amazon, Google, and Apple—even more so if one of those companies acquires Hulu. 

Even after last week's huge sell-off, Netflix remains a very pricey stock that has room to fall. Shares trade at about 35 times 2011 earnings estimates and nearly 25 times profit forecasts for 2012.  If you are willing to pay that much for Netflix, you can't afford mishaps like lowering subscriber targets by a million. (Paul R. La Monica for CNN Money)
 So bad timing, not a great idea for a split, a kooky name... is Netflix doomed?

Weigh in.

Other coverage:
Angry Netflix Customers React to Qwikster
Qwikster: Let's Make Fun of Netflix's New Service
Qwikster: the new name for something that takes several days 


  1. I think this is brand suicide. Qwikster is not a solid name, severing the DVDs from the established brand makes no sense. Not to mention that they are making the websites totally separate. If they were going to rebrand something, they should have done it to the newer service (streaming) that wasn't fully established in the minds of the public yet.

    When the price hike happened I dropped DVDs since I use streaming more, but I really resented it and have been considering dropping them altogether. I use other services (mostly Amazon) that get content faster than they do, and I can't help but feel like they are shooting themselves in the foot here unless they do something dramatic to improve their streaming offerings right quick.

    Plus the e-mail he sent was too long, a little douchey, and I kept expecting some kind of here's-a-week-of-streaming-on-me or something like that to go with it. They've done small things like in the past when they've screwed up, so it seemed weird that all they sent was a long winded and ultimately unsatisfying e-mail.

  2. This pretty much sums up my opinion of this issue:

    Quikster is a baffling name. It sounds like another of the thousands of failed VOM startups that come and go every year. (Didn't all the "sters" go the way of Friendster?) And their streaming service, while it sets the bar for usability, already lacks some obscure and brand-new content). This isn't Netflix's fault - copyright holders just don't want to stream their content cheaply - but these crises demand unification and simplification of the model, not this off-putting entropy.

    Netflix knows the costs of their current model aren't sustainable, so they're brute-forcing the model *they wish they had* onto the market. It's kind of a "magic wand strategy". Just replace the magic wand with a 2x4 or a good, solid hammer.

  3. Netflix pissed me off a lot with the first change, because I was a light user of both DVDs and streaming and I felt like what I was paying was totally reasonable for what I was using. I didn't want to switch to one or the other, because neither alone meets my needs. I looked at ditching Netflix because they were pissing me off, but as yet the other options aren't good. But it made me a skeptical customer.

    I'm guessing that what they just did not only failed to appease everyone they'd already incensed (in part because, as Holly pointed out, they didn't even offer any actual reparation), but pissed off most of their remaining customer base that can afford and wanted the combination service. Who wants to maintain two separate accounts, queues, credit card charges, etc. because a company thinks they need to evolve some business models separately? No one, that's who.

    It's sad to watch a previously awesome and innovative company start to die, but I'm pretty sure that's what we're seeing here. Not that they'll necessarily go bankrupt, but they won't be recognizable within a few years.

  4. I think they want out of the DVD-mailing business. Qwikster is actually designed to die. That's my hunch.

  5. Word, about "designed to die." Megan McArdle talks about the economics of Netflix here:

  6. Suicide pact though this may be, Netflix doesn't deserve all the blame here. They're splitting their business in response to bullying from the movie studios and copyright-warehouses. Netflix was being charged streaming video rates as if every subscriber streamed video, and was forced to split the services to avoid that.

    As for designed to die, there'd be no real point in it. Netflix has already invested hundreds of millions into their disc-stock. That's sunk-cost, not recoupable. "Keeping up" with new releases isn't nearly as big a commitment... if they could just keep the subscribers.

  7. @Josh: You're right, in a sense. They would have had to make this transition at some point. I think I object to the way they made it, rather than the transition itself.

    The Atlantic article Glenn references makes the critical point that if you give something to someone for free (especially over the internet), they will expect you to give it to them for free forever. I somewhat agree with this, excepting the case where you clearly delineate upfront that it's a "special" or "limited time" promotion.

    Netflix bungled their transition with a price hike, then wrote a ham-handed email apologizing about it, without, as Holly pointed out, any kind of reparation for the inconvenience. That's pretty classic mismanagement.

    And Qwikster? A name that implies speed, going through a somewhat outdated medium. Lame.

  8. Here's my question: where are the people leaving Netflix going to go?
    For DVD's, there's Redbox and Blockbuster Online, both good options. But the recent shitstorm has centered around the cost of streaming. Netflix/Quickster DVD's actually got *cheaper*, and while you and I went that route, very few people did. Streaming-only has 4 times as many subscribers as DVD-only.
    For streaming, which is largely the focus, I haven't seen a comparable service. Amazon, iTunes, Youtube, Vudu, Blockbuster-on-demand, etc. all offer pay-per-view at $3-$5 per movie. If anyone wants more than 2 movies a month, it doesn't pay. In other words, comparing Apple and Google's current business model to Netflix is like comparing Blockbuster Stores to Netflix, circa 2006. Amazon Prime and Hulu Plus have comparable subscription costs, but with a selection that makes Netflix streaming look like the Library of Congress. Bottom line: when places like CNNMoney say this is "tough competition", I wonder what they're smoking.
    That said, if the new websites don't do a stellar job of integrating Netflix and Qwikster, I'd bet on Qwikster becoming a small spin-off company competing mostly with Gamefly.

  9. When I got an email in my inbox this morning that said, in the first line, "I've messed up," I thought it was going to be that long-awaited mea culpa from an ex who had broken my heart long ago.

    What's interesting is that I had a similar reaction; I saw that first line, didn't automatically recognize the sender, and started thinking about who I thought owed me an apology. The message opened on an oddly personal note, which (while I'm sure it's deliberate) was a bit confusing.

    Instead of the email having the tone of an exciting announcement ("We're launching a new business, focusing exclusively on a specific market without any distractions") we get this oddly conciliatory, "sorry-we-pissed-you-off-but-here's-why-we-were-right-to-piss-you-off" explanation.

    If anything, the odd tone only encouraged criticism of the awful name. (seriously? Qwickster? The twitter name, along with all the relevant domains already being used by someone else all reek of last-minute planning and half-assery)