Blogocentric Formulations

Netflix --> Qwikster?

For those of you who may not have heard the news (or received the email if you're a subscriber), Netflix will soon be splitting their streaming video service and their DVD-by-mail service. The two were previously integrated on the same service with the same bill, but will now be separated. Netflix is going to be the name of the streaming service, and Qwikster will be the name of the DVD-by-mail service.

The financial perspective isn't what bothers me. There will now be two separate charges from two separate services (since I subscribe to both), but the total amount being charged by both services won't be any higher than it currently is. In that respect, I don't have a problem.

Where I do have a problem is that splitting these two services effectively destroys the integration they once enjoyed. Right now, I can go onto the Netflix website and look at both my queue of saved movies that are available for streaming, and my queue of saved movies that are available to be sent to me via mail. More importantly, when I'm looking up a movie, I can see whether it's available instantly or by mail and can add it to either queue. And even more importantly than that, it tells me when a movie is available instantly (since the choice is more limited by the DVD-by-mail option). Thus, if I'm browsing through my queue of DVD-by-mail titles and I see one near the top that's now available instantly, I can move it down the list or actually watch it without having to worry that I'm going to get something in the mail that I could be watching instantly at home.

Apparently Netflix is done with that. Netflix and Qwikster will be two separate services with two separate websites. No integration whatsoever. Which means that, if you're like me and are interested in the most efficient way of watching movies possible (i.e. you look up a movie and watch it on instant if available, and order it by mail if not), you now have to check two different websites and maintain two different queues which have absolutely nothing to do with one another.

Megan McArdle wrote a very astute article on this issue for The Atlantic:

http://www.theatlantic.com/business/archive/2011/09/the-qwikster-and-the-dead/24...

So what is it that Netflix (I use that term to describe the company as a whole, regardless of whether Qwikster is on the way) is really trying to do? Distance themselves from the DVD-by-mail business, which is destined to be phased out at some point? That seems the most likely of possibilities, although I agree with her assessment that the way they're going about it just doesn't make sense. This seems like an impulsive and rash move that is destined for - and is already receiving - a great deal of backlash from customers who see this as a stupid and ultimately ineffectual solution.

The bottom line is that Netflix's stock price has taken a hit. The negotiations with content providers are not going well (you may have noticed the new wave of "get it here X days before Netflix (and/or Redbox)!" advertising by competitors, and the fact that some providers like Starz and Showtime are refusing to provide content at all). There's no question that Netflix's business has to change and adapt to the new marketplace, where they're competing with Redbox and Blockbuster Express. Just like the brick-and-mortar video stores had to adapt to compete with Netflix, now Netflix has to compete with video-on-demand (VOD) and kiosk rentals in every grocery store.

I'm surprised that Netflix's response to the competition is to split the company's identity and divide up its integration, seemingly in an esoteric attempt to phase out a part of the business that's destined to fall by the wayside eventually. As McArdle pointed out, none of that really addresses Netflix's primary issue, which is the fact that their instant/streaming service is undervalued and they made a mistake in making it so cheap... because now their customers expect it to remain cheap. And now they do this instead of confronting the real problem.

I'm not Blockbuster's biggest fan, but I have to give the failing company credit where credit is due. They're figuring out a way to survive in an era where brick-and-mortar retailers are becoming more and more scarce. With the advent of their Blockbuster Express kiosks, they take advantage of their strengths (agreements with studios that give them access to movies earlier than new companies like Netflix and Redbox), while adapting to the current market and actually putting their rental business in kiosks which are growing in popularity. They figured out a way to survive in a tough economy, much like Barnes & Noble with their foray into the eReader market and overhauling their special order service, while Borders stubbornly stuck to the brick-and-mortar business plan and suffered for it.

I respect companies that adapt to change... that find ways to soldier on in the face of adversity. Especially when the marketplace is like it is currently and not just changing in minor ways, but completely revolutionizing itself. When a company can find a way to stay viable and stay solvent during these kinds of crises, it impresses me.

Sadly, if today's announcement is any indication, it seems like Netflix is not handling the change well. I've been a faithful subscriber for many years and have never really had a problem with their service... until now. I would rather deal with price adjustments; I can understand and respect that. What I can't understand is alienating and pissing off existing customers by changing the way they interact with your business, just to address some obscure goal (which doesn't really address your real problem) in the first place.

I sure hope Netflix figures it out sooner rather than later. It would be a shame to see such a great service tank because of such stupid decisions.