Netflix Is Killing Their DVD Business

[TampaYankee]

Netflix Is Killing Their DVD Business to Save Their Company

By Adam Clark Estes | The Atlantic Wire – 6 hrs ago

Netflix is dividing in order to conquer. Sunday night, the company's co-founder and CEO Reed Hastings announced in a blog post that they would be splitting up their DVD-by-mail and streaming services into separate businesses. Netflix will live on as a streaming-only service, and in a few weeks, the DVD service will become Qwikster, a name that Hastings says "refers to quick delivery" and that tweeting tech types are having a blast making fun of. It's unclear how long they'd planned this move but as one commenter at Fred Wilson's AVC blog pointed out, the fact that the @qwikster Twitter account is this morning still in the possession of a bored kid who tweets about smoking pot suggests the move wasn't planned too far in advance.

Coming hot on the heels of customer outrage over the higher prices and a panic on Wall Street after a million of those customers unsubscribed, the announcement unsurprisingly reads primarily as an apology. But Hastings isn't apologizing for the new prices; he's apologizing for his "arrogance" in moving too fast and not explaining the company's changing direction well enough. The new direction--and the tacit explanation for the new prices--is pointed aggressively away from DVD's. As Dan Frommer quipped, "What, you think the bad name, 'Qwikster,' is an accident?"

"It is the right move" says Erick Schonfeld of TechCrunch:

"With this move, Hastings is reaffirming his long-held belief that streaming is the future of Netflix and the future of entertainment, and Wall Street can judge its progress by how well the streaming business is doing on its own. Separating the businesses will also force customers to make a choice, and it is obvious which choice Hastings wants them to make (hint: it starts with an “N”). Earlier today, I wrote a post beseeching Hastings not to listen to Wall Street after his stock got hammered. You’ve got to give him credit for moving fast in the direction where he thinks the greatest opportunity lies."

“The demise of the DVD is also inevitable points out Ryan Lawler at GigaOm, and as any savvy company would do, Netflix is paying attention to customer behavior:

"All that said, separating the two could also hasten the demise of the DVD-by-mail business, if the company’s recent subscriber guidance is any indication of user's interest in a standalone DVD-by-mail service. After all, it was that part of the forecast that Netflix most badly misjudged. The company expected 3 million standalone DVD subscribers when it first gave guidance on its second-quarter earnings call, and revised that downward by 800,000 in its updated forecast."

“Nevertheless, a number of indicators suggest that Hastings' move was rather hasty suggests Alexis Madrigal at The Atlantic. And @qwikster's tweets aren't the only ones:

"Leaving aside whether it's wise to guide a company based on a hunch about history, there are a couple of indications that Netflix might be moving too fast. Number one is that they didn't secure the Twitter handle @Qwikster or the homophone domain Quickster.com. Based on his tweets, @Qwikster is a young male who likes to smoke pot more than he likes to tweet. Quickster is owned by a domain name squatter advertising various types of flooring."

I have to wonder if Hastings started to panic as Netflix stock nosedived last week. After peaking at over $300 during the summer, Netflix's share price is down to $155. It has lost almost a quarter of its value in just the past week of trading.

“Short-term fumbles aside, Netflix didn't have many other options in the long-term argues Dan Frommer:

"Netflix first has to convince Hollywood to stream its best movies, and it needs to train consumers to stream movies as a default behavior. That means making sure that the streaming business can stand on its own. And that means separating DVDs from the equation, and doing as much as possible to get everyone to stop using them, short of blatant sabotage. … This is pretty bold move, and things could even get uglier and less certain for Netflix in the short-term. But ultimately, it’s the right decision, and Netflix investors should be happy they have a CEO who is actively building for the future, and not sitting around, waiting for someone else to take the lead."

[lookin]

At first, I didn't get their new strategy at all. The DVD-by-mail business is one that Netflix owns. Nobody does it better, if at all. Streaming video, on the other hand, is a business that's festooned with competitors. Even Amazon is in it.

The key to success in streaming video, I think, has been the ability to deliver a wide range of content at low cost. Steve Jobs, for one, has been extraordinarily successful in hammering out agreements with content-providers and it seems Netflix would be vulnerable to everyone who knows how to cut a deal. I figured maybe they just think they're better at it than anyone else.

But now I read that Netflix has actually stuck its nose under the content-creation tent by underwriting House of Cards, an hour-long political drama starring Kevin Spacey and due to air next year. That puts a different slant on things. If they can get exclusive content, not only by crafting deals with traditional content-developers, but also by underwriting their own, it could give them a real competitive edge. If they can do that, their case for success in streaming content becomes much stronger.

Especially if the Post Office is going out of business.

[Guest EXPAT]

I did the free one month trial with Netflix and I was not impressed. First of all 9 out of 10 things that I wanted to see were not available via streaming. So that ended that trial for me right there. And most of the newer movies I see in the theatre anyway because as anyone will tell you that is a true movie lover, that is the only way to see a movie in a theatre on a big screen.

So I cancelled and I won't be going back.

[caeron]

We were relatively happy customers until all this.

We canceled today.

[BigK]

This is destined to become one of Harvard Business Schools Case Studies of how to damage a growing business. Netflix had the corner of this market and the combination of streaming and delivery was a plus to customers.

I think that Netflix could have passed on an across the board $2 a month price increase coupled with an explanation of its increasing streaming costs and contenacquisitionon costs followed by another $2 a month per year over the next few years. Instead they had a high number of cancellations and many who choose 1 service which dropped revenue $2 per month from $9.99 to $7.99 in the case of those receiving 1 at a time DVD's.

[BiBottomBoy]

What really killed them was them killing of Blockbuster and the other competition. By doing so they reduced the amount of DVDs that the studios were able to sell which meant that the studios had to sell DVDs at a higher wholesale price which fucked up NetFlix's entire pricing system.

[TampaYankee]

What really killed them was them killing of Blockbuster and the other competition. By doing so they reduced the amount of DVDs that the studios were able to sell which meant that the studios had to sell DVDs at a higher wholesale price which fucked up NetFlix's entire pricing system.

So let me get this right. You are saying NetFlix made more money by making less money? By losing sales to their competitor they were making more money than by paying a small increase to the studios for renting those DVDs to former Blockbuster customers or many of them?

I don't know... I'm more inclined to believe we may have greed at work here. Either on the part of NF or the studios. They saw prices going up on gas, food, movie theatres and thought 'why can't we cash in?'. And they could have if done more gradually as someone above suggested.

If this is a public company then I'm waiting to see how much longer this CEO will last.

[caeron]

My understanding is that the price increase really is mostly driven by the studios who see how well Netflix was doing and decided they all wanted more money for their content.

Even so, turning this into two services with two web sites and two accounts to manage for their customers is just a big FU. That's why I quit.

[TampaYankee]

My understanding is that the price increase really is mostly driven by the studios who see how well Netflix was doing and decided they all wanted more money for their content.

Even so, turning this into two services with two web sites and two accounts to manage for their customers is just a big FU. That's why I quit.

Well, whether NF or the studios, and there probably is something to the studios greed in contributing to this, it points out that you can make more soup by pissing in the soup pot.

[BiBottomBoy]

What it means is that if you completely defeat your competition your suppliers will make up for the slack by jacking up the prices they charge you - since you can't exist without your suppliers.

[Guest JamesIvory]

I did the free one month trial with Netflix and I was not impressed. First of all 9 out of 10 things that I wanted to see were not available via streaming. So that ended that trial for me right there. And most of the newer movies I see in the theatre anyway because as anyone will tell you that is a true movie lover, that is the only way to see a movie in a theatre on a big screen.

I agree 100% with you. Same here tried it, the movies they stream are old or of little interest to me I can find better on Hulu or Amazon Prime or Vudo. Also you are correct there is no sub for seeing a film in a theater.

[Guest EXPAT]

So today I read where the company maybe setting up to sell the streaming business to Amazon.com. That would interesting.

[BigK]

So today I read where the company maybe setting up to sell the streaming business to Amazon.com. That would interesting.

If that's true, then I would have thought they would have retained the Netflix name for the DVD business and created a new name for the streaming business. It seems unlikely that Amazon would want to change the name of their streaming business. Although the Netflix name has great (but falling) value if Amazon wanted to operate it as a stand alone business.

[TampaYankee]

If that's true, then I would have thought they would have retained the Netflix name for the DVD business and created a new name for the streaming business. It seems unlikely that Amazon would want to change the name of their streaming business. Although the Netflix name has great (but falling) value if Amazon wanted to operate it as a stand alone business.

I think it is pretty clear that NF has not been making good business decisions. Why should they start now.

[BiBottomBoy]

NetFlix may be trying to run away from their deteriorating brand image.

[TampaYankee]

You know, they added insult to injury by the arrogant response to their customer base about the increase. Sort of not only are we screwing you but we're pissing on those that object and complain.

My son has been trying to get me off cable because it is such a rip-off. He even subscribed me on his own nickel. I think I viewed it two times over three months. For my interests, it was such a nonstarter. Old movies, mindless sitcoms I never watch, kids fare I outgrew decades ago. Any intersting series usally had missing or limited episodes and disappeared at inopportune times.

Worst eight dollars/mo ever spent on my behalf. I thanked him and asked that he cancel.

[BiBottomBoy]

What I don't understand is how they got away with the price increase the way they did.

In general it's an FTC violation for a company that practices recurrent billing to change prices on an opt-out model.

I guess they donated money to the right political candidates, because a lot of smaller companies have gotten shut down for doing what they did.

[lookin]

They must be reading the MER Board.

Netflix kills plan to split off DVD rentals

[Guest hitoallusa]

Lookin you don't know how influential this board is.. It's seems no one is posting but there are a lot of people reading here. It's an international forum. That's why I want to come up with a better name, like The Review.. lol..

They must be reading the MER Board.

Netflix kills plan to split off DVD rentals