By Carl Laron on September 20, 2011 in
Back in July, Netflix announced what amounted to a massive price increase when it removed streaming video from its DVD-by-mail service and made it a separate subscription. As we blogged about, fallout was swift and largely negative. Many predicted that customers would drop part or all of the company's services as a result. Those predictions have proved acurate. Netflix reported last week that it now expects to lose 600,000 customers this quarter -- a far cry from the 400,000 it had expected to add instead. On Monday, Netflix CEO Reed Hastings emailed subscribers with an apology of sorts. The missive started: "I messed up. I owe you an explanation." However, the news that followed -- that Netflix would split into two completely separate services, one exclusively DVD by mail, the other exclusively streaming -- didn't exactly make most feel any better about things. In fact the near universal reaction has been "Guess what, Reed, you messed up again."
Introducing Qwikster
Sometime in the next few weeks, Netflix will cease to offer disc-by-mail subscriptions. In its place, the company is rolling out a new website called Qwikster. If you want DVDs or Blu-ray discs by mail, you'll need to establish a separate Qwikster subscription, and you will see two separate entries on your credit card bill. Let's call that strike one.
One positive development is that Qwikster will be adding a video-game-by-mail option, for an upgrade fee, of course. One negative one is that the Qwikster disc-by-mail site and the Netflix streaming services site will not be integrated; for someone that subscribes to both, that could mean a lot of jumping around between websites to see if a title is available only by disc or if it could also be streamed. Strike two, I think.
Finally, as sorry as Hastings and Netflix are about the clumsy way they announced the company's new business model, don't expect a price break. The previously announced pricing for the separate streaming subscriptions and, now, Qwikster disc-by-mail subscriptions remains unchanged. You can make the call on that last pitch yourself.
Netflix, what were you thinking?
That was the question on everyone's lips on Monday morning. Even those that covered this simply as a news event stated the obvious: "Netflix ... could even alienate customers further by asking them to now deal with two websites and accounts instead of just one," USA Today wrote, after calling the move a "risky bet."
Columnists and commentators, on the other hand, were not so reserved.
Megan McArdle at The Atlantic is simply "mystified" by the move, asking "What problem does this solve?" She adds: "It's so bizarre that I spent an hour this morning desperately searching for the logic. They can't have just decided to do this for absolutely no reason, can they?"
"Oops, Netflix has done it again," writes Athima Chansanchai at MSNBC.com's Technolog. Chansanchai is among the many who point out that by separating the two services this way, the large gap between what's available on disc and what's available to stream will become painfully obvious to those that haven't taken note already. When programming from Starz disappears early next year, that gap will be bigger still.
Some believe the move is a first step toward shuttering the company's DVD/Blu-ray business altogether in favor of streaming, which it sees as its future. However, Timothy Lee at Forbes.com says that dividing up the subscriber base this way could backfire badly. "There's a real danger this will result in a death spiral: the new, smaller company will have trouble landing content deals, or will be forced to raise prices in order to cover the costs of content," Lee writes. "This will make the service less attractive to customers, some of whom will cancel their subscriptions, making it even harder to get content."
And what do Netflix's customers think? Did you have to ask? You can read their comments at the Netflix blog.