Why is Netflix pulling open the wound they created by increasing their prices? The company announced that they will be splitting Netflix.com into two separate services that are completely independent of each other despite sharing a parent owner: Netflix.com will be for watching streaming media only and the new Qwikster.com will be for DVD’s by mail and will also include video games for the first time.
On the Youtube page for the video, user CtrlAltDan says:
“So let me get this straight. Now I have to manage two separate queues on two different websites, my DVD queue won’t tell me when something becomes available on instant, I get two different lines on my CC bill from two different companies, my ratings of a movie on my DVD queue won’t influence recommendations on my instant queue, have to update my CC information in two different places, and keep track of two different logins. On the plus side, I get to pay more!!”
The only part I like about this is the branding, because I have a thing about brand names reflecting their product and “Netflix” never quite fit a DVD by mail service, so I thought it was brilliant when they started the online streaming. It was as if that was the plan all along. hmmm…. But Qwikster? Wtf is that? Netflix = Internet Movies. Qwikster = fast…things. huh? Good thing no one besides me cares.
In an apology video, the founder and some-other-guy say sorry for “the way” they told everyone about the price increases. Super bizarre since no one complained about the delivery – it was the actual price hike that was the problem. This video says that if only they explained it better then it would have gone over better but they still don’t explain anything. They just use vague terms, pretty much saying “this will be a good thing because it’s good. don’t worry about it”. Not helpful.
TheOatmeal sums up the split pretty accurately, but it raises more questions than it answers. It seems obvious to me that there is more going on behind the scenes here, but I don’t know exactly what yet, though here is an interesting theory from Bill Gurley:
So here is what I think happened with Netflix’s recent price change (for the record, I have no inside data here, this is just an educated guess). Netflix has for the past several years been negotiating with Hollywood for the digital rights to stream movies and TV series as a single price subscription to users. Their first few deals were simply $X million dollars for one year of rights to stream this particular library of films. As the years passed, the deals became more elaborate, and the studios began to ask for a % of the revenues. This likely started with a “percentage-rake” type discussion, but then evolved into a simple $/user discussion (just like the cable business). Hollywood wanted a price/month/user.
This is the point where Netflix tried to argue that you should only count users that actually connect digitally and actually watch a film. While they originally offered digital streaming bundled with DVD rental, many of the rural customers likely never actually “connect” to the digital product. This argument may have worked for a while, but eventually Hollywood said, “No way. Here is how it is going to work. You will pay us a $/user/month for anyone that has the ‘right’ to connect to our content – regardless of whether they view it or not.” This was the term that changed Netflix pricing.
With this new term, Netflix could not afford to pay for digital content for someone who wasn’t watching it. This forced the separation, so that the digital business model would exist on it’s own free and clear. Could Netflix have simply paid the digital fee for all its customers (those that watched and not)? One has to believe they modeled this scenario, and it looked worse financially (implied severe gross margin erosion) than the model they chose. It is what it is.
It’s interesting…but if it’s true, why wouldn’t THIS be the content of that lame video above? Why wouldn’t Netflix explain that this is the case so everyone can get pissed off at Hollywood studios instead of porr Netflix trying to meet their demands while continue a great service? Something doesn’t add up here…
Is Blockbuster really the answer? I recieved this mailer yesterday and have been seeing similar ads to this online:
(details of price and services on the other side)
From PRNewswire:
Blockbuster L.L.C. today began rescuing upset Netflix® customers by launching a limited time, nationwide promotion for all Netflix customers who switch to Blockbuster Total Access™.
Blockbuster Total Access provides benefits Netflix doesn’t offer: availability of many new releases 28 days before Netflix; unlimited in-store exchanges; games for XBOX 360®, Playstation3™, and Nintendo Wii™, and no additional charge for Blu-ray™ movies.
As part of Blockbuster’s ongoing efforts to provide the ultimate in convenience, choice and value, Netflix customers who switch to one of Blockbuster’s two most popular Total Access plans will receive a 30-day free trial. After the free trial, customers will continue to receive Total Access for a new everyday price of only $9.99 per month for “1 Disc” at a time or $14.99 per month for “2 Discs” at a time.
“Blockbuster quickly responded to the cries of Netflix customers,” said Michael Kelly, president of Blockbuster. “Blockbuster Total Access is Netflix ‘without the wait.’ The combination of DVDs by mail and unlimited in-store exchanges provides more than 100 million people living near Blockbuster stores immediate convenience and unparalleled choice.”
Many Netflix customers have voiced their frustration about the Netflix price increase on Twitter by posting “Goodbye Netflix, Hello Blockbuster!”
“We find it shocking that anyone would raise rates as high as 60 percent,” Kelly added. “In contrast, Blockbuster has worked hard over the past few months to deliver value in entertainment to consumers in this economy and has even reduced in-store movie rentals to as low as 49 cents.”
This special offer for Netflix customers is available through Sept. 15, 2011, in participating stores and at Blockbuster’s website.