Tuesday, September 20, 2011

Netflix in the News Again... Qwikster

So, since my last article explaining the Netflix price increase debacle, people got mad. Most folks don't care if the problem was created by Big Content to do exactly this (hurt the Netflix brand,) and Netflix can't defend themselves on this point without angering huge companies who they need to have any sort of future in their industry. People see that their bill is going up, while offerings for the services they enjoy are declining in terms of selection, and they need someone to blame. The reactions to my initial article on the subject included some legitimate questions about how much the price increase would actually effect Netflix, whether many people would grouse and threaten and huff and puff... but continue to pay the higher prices, or at least those who made good on their threats would be replaced my enough new customers that it wouldn't matter. Netflix was surprised by the number of cancellations this month (revising expected subscription numbers by 1 million,) a number likely boosted by the news that their content deal with Starz! would not be renewed. So they had to do something, and they did.

Reed Hastings, on his "Taking the Blame For the Studio Bastards I Need To
Be Successful" 2011 Tour.

I'm active in a lot of different social media, so I got the apology from Netflix CEO Reed Hastings from many sources, all at once, and I was surprised by it. Not so much the apology, someone had to say something to mollify customer outrage, and throwing the true culprits under the bus isn't realistic, nor will it ever be a business-safe option. Like many others, the bit that surprised me was the sudden announcement that the streaming and DVD-by-mail businesses would be separated out completely, and the DVD option would be rebranded as "Qwikster." The reaction from the public was, at the risk of understatement, not satisfied with either the apology, the explanation, or the plan moving forward. The torches and pitchforks came right back out, and people started mocking the company, asking "what were they thinking?"

Before I give my take on what they are thinking, and despite the current prevailing opinion, why I think it is a good move in the long run, let's talk about the downside. In all fairness to the angry mob, there are a few things about this announcement that suck. Anyone interested and even willing to pay more for what they had before just had everything about these services made more complicated for them. Two websites, two bills, separate tracking of preferences for movies, reviews and ratings which, without a lot of duplication of user effort, means that the recommendations for both services are weaker. And while they currently honor announced pricing, separate companies with separate cost structures could lead those customers who just want 1 DVD and Unlimited Streaming to be paying a whole lot more for two services down the line, if either division is forced to raise prices again.

I'd given up on DVD by mail, but this move might make me reconsider.
Why? There's a clue on the right of the bowl of popcorn.

That said, the vast majority of the people yelling loudly that Netflix is making a terrible business decision frankly have no idea what they are talking about. The core fear in a business like Netflix is the idea that new technology could make you obsolete, the same way Netflix itself made the local video story redundant. Physical media for digital content is a dead-end technology. People wondered a few years back "What comes after Blu-Ray?" The answer is: nothing. Going to a store or having a box shipped to you with video, sound, games on them... the tech isn't quite dead, but it is dying. Do you want to have your main business associated with the buggy whip a few years after the average person has embraced the automobile? Netflix knows exactly what it is doing, when (and it is a question of WHEN, not IF) DVD-by-mail dies, their coroporate identity isn't tied to the sinking ship.

Before all that happens, there are other advantages to this new plan. Companies typically don't die gracefully overnight, they thrash around in the throes of obsolescence for years, and are sold off piece-by-piece. If that becomes necessary, having a separate division with no structural ties to the Netflix streaming website and databases makes the sale of the division much easier. In shorter terms, revenues from a division no longer have to support the development costs of the other unrelated business. DVD profits don't have to go to content licensing for streaming, and streaming profits don't have to worry about paying for shipping, inventory and warehousing of physical goods. In the short term, selection and service for both divisions can be improved proportionally to their level of success. This allows Netflix to focus on expanding its offerings and delivering the best content possible without fear that a sudden dip in the DVD business will affect the operating budget it desperately needs to remain relevant.

Profile picture (since changed) for the Twitter account that had the Qwikster name
long before this move was announced.

So... Qwikster. The name has already been mocked, but that doesn't mean much to a good product or service being successful (anyone remember what people said about the Nintendo Wii?) The separation also allows the by mail service to finally offer video games as part of an upgrade package similar to the Blu-Ray upgrade available now. Taking advantage of the distribution network and postage deals in place currently would make this an attractive alternative to competitor Gamefly, whose mailings are a lot slower, prices are a lot higher, and who pay more than Netflix does for postage. Personally, I'll have to carefully measure a price break and faster shipping against my current Gamefly subscription that allows me to keep games I've rented or buy used games for a fraction of even used game prices, plus $5.00 off purchase coupons issued every few months. It'll be a rough choice for me, considering through Gamefly I just bought Fallout: New Vegas for $4.00.

An amusing sidenote to the whole business is the story of Jason Castillo, the overnight Twitter celebrity who has the handle @Qwikster, and has for years, (though he rarely tweeted on it before the last few days.) The current owner of that account seems to be a foul-mouthed student and pothead who overnight went from a few followers to over 10,000 as a result of the new Netflix division wanting to purchase the handle from him. The young man was previously overwhelmed by events such as losing his "bowl" and hitting himself in the head with a wrench, so a large company suddenly wanting to do business with him seems a little beyond his capabilities. He has posted and since removed tweets about people offering to buy his name, and not being sure who to trust. Considering all the assumptions, misinformation and anger tied up in all of the stories the last few days about his namesake, I can't say as I blame him for his confusion.

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Alpha said...

Solid post, as usual.

Jay said...

lol, Qkikster! ;)

Timothy said...

There seems to be this common misconception that Netflix was what brought Blockbuster down, and that is not the case. While Netflix did do some damage to Blockbuster, it was RedBox that killed it -- and very quickly. It is like the argument that the eBook reader killed Borders, which ignores the fact that Borders death came about from a decision to ignore on-line sales of physical books (which still greatly outpaces eBook sales).
Moreover, as I person who does have some knowledge about what he types, I can tell you that my criticism of Netflix in regards to this current move is informed (if not wholly accurate).
There seems to be this mindset, especially among those who are early to mid adopters of technologies that once they have it, EVERYBODY has it. And that seems, from where I sit, how you tend to address things. You are ABSOLUTELY RIGHT when you address the issue of timing in discontinuing the DVD-by-mail service, but Netflix appears to be anticipating this at least two years too early (unless the USPS shuts down for good, in which case they may as well kill the service today).
As for what came after Blu-ray (which still isn't as widely embraced as some people tend to believe), the answer is "digital copy". There may be a "nothing" that comes after it, but I am betting that there will continue to be (for some time period) a major market for people who seek to have "ownership" of material.
I would like to say that I don't at all understand your anger about a company seeking to make money from the products they produced (and did so to make money). The studios may not play nice with others, but Netflix made an insane amount of money using their content. Given the chance to negotiate new contracts, it would be irresponsible for them to not seek to balance the account in a manner that did not favor Netflix to such a large degree.

neatfit said...

I honestly could care less about netflix, gamefly is really the way to go, in my opinion. But people decide for themselves, I can't say anything about that.

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