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.
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