Madness has taken hold of Netflix

Did you get an email this morning from Reed Hastings, head honcho at Netflix? I did. Here’s an extended version of it on a Netflix blog. I am spared the trouble of writing a full response, because an NPR blog has spoken for me:

Netflix has figured out that people are very upset about its decision to split streaming video and DVD delivery — a decision that got it in huge hot water earlier this year. Customers who had previously gotten both streaming and DVDs for a single price would now have to pay separately. If you only use one or the other, you could pay less, but if you still wanted both, you’d pay more.

The Netflix response? Separate the businesses even more. In a new blog post, Netflix co-founder Reed Hastings explains that for some reason, he has concluded that separating the businesses completely is going to help people understand what’s going on. Thus, Netflix will not send DVDs at all anymore but will only provide streaming, while the company’s DVD business will happen under the new “Qwikster” brand.

Hastings seems to be operating under the premise that customers don’t really understand what’s going on; that they are angry because they think that a single business has increased its price when in fact it has merely split into two businesses that charge separately. Presumably, the idea is that making the split more definitive will make people slap their foreheads and say, “Oh, now I see. Netflix actually lowered its prices, as long as I don’t buy Qwikster! And new Qwikster is cheaper than old Netflix! I’m coming out ahead, sort of, if I don’t want all the services I used to get!”

The only problems with this approach are that its underlying assumptions are almost certainly wrong, and that it ignores major inefficiencies that will be introduced for customers who do, indeed, want to continue to use both streaming and DVDs. Now, if you want both, you have to go to two different sites with two different queues, you have to pay two different charges to two different entities, and in general, you have to have two different memberships. That’s not psychologically better for consumers. That’s buying two things which are both less helpful than the single thing you could get before.

It’s like a shoe company deciding to sell right shoes and left shoes for 12 dollars each where pairs of shoes used to be 20 dollars and thinking that consumers will notice the lower 12-dollar price but not the fact that it buys only one shoe….

Good response, and I hope NPR will forgive me for quoting it so extensively (please go to NPR and fully experience its services).

Lemme ‘splain somethin’ to you, Mr. Hastings: Neither your DVD service nor your streaming service stands alone; they are complementary. OK, so maybe the DVD service is complete in its way, as a fine service if this were the year 2001. But you and I know (or think we know) that Web streaming is the way the business is going to go, so if you are survive you have to get into that business big. Which you have done.

But here’s the critical point you’re missing: Your streaming business (which you laughably call “instant”) does NOT stand alone. It is not complete. Perhaps you’ve noticed that you are unable to get permission to stream most popular, recent titles. Therefore if your customers want a full service that will provide them with a full selection of the movies and TV shows they want to see, they have to supplement their streaming with DVDs. Which you seemed to get until, quite suddenly, recently.

If I weren’t so dependent on you, I’d drop your service now. But I got rid of my cable (or all of it except local stations, which almost amounts to the same thing), so almost all of the video content I ever watch now comes from you. It’s not the added cost, although that’s not pleasant (I dropped the cable because you were such an economical alternative). It’s the way you’ve done this.

I used to think that Netflix was a company that knew what its customers wanted. Not so much now.

15 thoughts on “Madness has taken hold of Netflix

  1. Doug Ross

    This is the difference between the government and private business. When private business screws up, they pay for it. When government screws up, they just raise taxes to cover up for the stupidity.

    This will turn out to be one of the biggest marketing failures in the history of business.

  2. Sally

    Brad, you should at least check out as an alternative, particularly to Nexflix’s tv content. For 7.99/month there is a HUGE variety at Hulu. Also, Amazon has expanded it’s streaming delivery system as well (I can’t speak to it’s completeness or lack thereof). Nexflix is signing it’s own death warrant. I have already deserted the sinking ship….

  3. bud

    In the fall this is not a problem. I just watch football, a vastly superior entertainment option than movies. Check back with me in February.

  4. Kathryn Fenner

    @Sally–I have Amazon Prime because I buy a lot on Amazon. I have tried the video system, and watched a few, but it does not have a very good sort feature and no queue feature. If you are picky, as I am, or want films you never heard of to be suggested to you, Netflix is best. I watch Hulu in the free version for a few shows. I should check out Hulu Plus.

    Netflix is still the best deal going for me, despite the tin ear of its public relations. Perhaps this is an opportunity for Adco, Brad.

  5. Greg Jones

    We’ve dropped the streaming part, and are DVD only now. Frankly, we never used the streaming enough (or not much in the last year) to even justify the extra $2 (now extra $7.99). Look, when I pay $100 a month for DirecTV for 6 TVS, I’m not sure when there’s occasion to watch much streaming. If there is, then we are definitely under-utilizing the dish.

  6. Brad

    By the way, did anybody besides me crack up when Doug said, “When private business screws up, they pay for it.”

    First, this is a clear case of, “When private business screws up, WE pay for it.”

    And second, “When private business screws up, they dig the hole deeper.”

    This is amazingly absurd. The company creates a bad situation for itself, and responds by going, “Ummm… let’s CALL IT SOMETHING ELSE. Yeah, and… let’s make our customers go to two different sites and do business with two different entities to get done what they did before in one place! And… Since they don’t like paying two separate bills to us, let’s make them go through two separate transactions with different entities!”

    Yep, that private sector is responsive, all right.

    Amazing that there’s nobody at this company who can tell this guy the harm he’s causing.

    He should be impeached! Oh, wait — this is the private sector…

  7. Bart

    We bought Roku several months ago for our second television set and it works well. My wife has a premium membership in Amazon and now we can get their streaming movies for no additional cost. Like Kathryn said, you cannot que movies but it doesn’t take much time to go to the genre menu and do a short search.

    Besides, the cost savings for cancelling NetFlix more than pays the one time cost for Roku. Since my wife and daughter shop Amazon and pay a reasonable annual fee, why not take advantage of a good service?

    And, HuLu is a good option as well. A lot of opportunities other than NetFlix.

  8. Kathryn Fenner

    I just changed my membership back to 3 DVDs only, which it was before they added unlimited streaming–and saved over my 2 DVDs plus streaming. The streaming is okay, but the selection is limited and I already have Amazon Prime….

  9. Brad

    Hastings said, “I messed up. I owe everyone an explanation.”

    Now he needs to say, “I messed up again. I owe everyone another explanation.”

    And then he needs to undo all that he has done. Or the company’s board (does it have one?) needs to undo him.

  10. Kathy

    I like Norm’s comment. I was just saying that Netflix should stop digging its hole deeper and ditch Qwikster–like Coca-Cola did with New Coke. Did Hastings come up with the New Coke idea?! What a dunderhead!

  11. David

    In the fall this is not a problem. I just watch football, a vastly superior entertainment option than movies. Check back with me in February.

    I sincerely hope you are not talking about college football. You know that they are a monetary drain on this state, right? And those insufferable students and alumni who go on and on about “we” this and “we” that…


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