Netflix divides. The internet complains.

“I have some great ideas on how to make our services less convenient!”

Some folks around the web have been wondering if these were the recent thoughts of Netflix co-founder and CEO Reed Hastings before he announced that Netflix would be dividing into two services: the streaming portion continuing under the name of Netflix and a separate DVD portion going under the less-than-catchy Qwikster. And by separate, it seems Hastings means truly separate when it comes to these two. An article on Slate today summed up some of the problems associated with this:

Most of Netflix’s customers subscribe to both DVDs and streaming, and if they’re like me, they like the service because it enables both not-so-picky instant gratification and well-considered delayed gratification. I use the DVD service to select movies that I really want to watch and am willing to wait for; I use the streaming service when I want to watch something – and pretty much anything – right now. I can keep doing this after the DVD plan is renamed Qwikster, but it will require more work. If I search for a movie on Qwikster, it won’t tell me that the movie can be seen for free, right now, on Netflix. If I search for a movie on Netflix and don’t find it, it won’t let me add it to my DVD queue.

On the other hand, perhaps Hastings is looking towards the future – it is only natural, as DVD viewings are on the decline with the popularity of streaming on computers and through video game and Blu-ray systems. Having two separate companies means that when the time comes and DVD viewings begin an even more dramatic decline and more people stream, Netflix will already be well ahead of the game not having to focus on the rising costs of shipping DVDs. That will be Qwikster’s problem.

What do you think of these unexpected turn of events? Is Harrington alienating even more Netflix users, making it easy for some competition to get a stronghold? Or is he justly thinking ahead?





27 comments

  1. Robert Reineke

    Someone will have to point me to where the “we’ll put the future business model ahead of current customers” plan has worked in the past. Seems tougher to get to the future if you can’t manage the present.

    It may be a slight inconvenience at worst. But, it certainly says something about how the CEO values current customers. And it just strikes me as premature. The future is almost certainly streaming, but with Netflix apparently going to lose Starz content, bandwidth limitations, and the lack of current releases in streaming, I have severe doubts that streaming is ready to be separated from Netflix’s physical media at this time.

  2. Sounds like an idiotic move, doesn’t one Plan (either disc or streaming) support the other? And can’t yOu already just have subscriPtion it one or the other? Who wants two separate bills Instead of one consolidated one??

    And Quickster?? What is this 1999? What a terrible name.

  3. We’ve essentially had that split here in Canada for some time now – NetFlix here has only been about streaming, so you would need to go to a service like zip.ca for your DVDs to be mailed to you. There’s advantages to both (zip has an extensive catalog) and paying 2 bills (short of any extra cost) is no big deal. However, if you had it together and it was taken away from you…Well, I can see the annoyance factor.

    Even worse though is how it feels like they’ve set up Qwikster to fail. The way they’ve positioned it, the name (oh that terrible name) and the talk of future plans indicates to me that they expect (and almost want) that business to fail within 1-2 years. Not just slowly fade out – but fail.

    And I agree with Robert above – there is no improvement to the customers, so it must feel like a bit of a slap in the face.

  4. Kurt Halfyard

    This is all probably a business based decision so netflix can avoid taxes or something, it certainly isn’t in the interest of efficiency or customer service/convenience.

  5. I’ve seen some business analysts suggesting that Bob is exactly right – they’re separating out the DVD section because they think the DVD business will die completely in a couple of years, and it’s apparently much easier and less financially problematic to kill off a separate company than a division. Plus, by rebranding Netflix as a streaming only service, they protect the name when DVD does die.

    I still think it’s a bad move, though. At this point (talking US only), Netflix is the ONLY company that has both streaming and DVD, the ONLY place you can go and see immediately whether something is available on streaming or DVD and get the appropriate one with the same account. Now that they’ve eliminated that advantage, it’s looking more attractive to go with HuluPlus for streaming and GreenCine for DVDs, at least for me. And I say that with something of a heavy heart, because I’ve been a loyal and outspoken supporter of Netflix for over ten years. They used to be one of the few companies I actually loved.

  6. It is more of a cash flow problem, their stock has been taking a hit this year, they don’t have a great revenue for how much money it costs to store the library they have. Energy costs continue rise and the pressure to have a bigger catalogue of movies will continue to cut into profits. My prediction is it is going to get worse, US could end up looking more like Canada, and there won’t be any competitor bigger to offset, because energy costs will not make it worthwhile.

  7. Robert Reineke

    I suspect that with streaming rights issues proving more difficult, Netflix needs an infusion of capital and spinning off Qwikster is the easiest way to do it. Yeah, the DVD by mail business won’t last forever, but there’s apparently 13 million or so American households that pay around $10 per month for that service, so there’s profit to be made before the inevitable shutdown. The days of rapid growth are over, but I think it’s going to hang around longer than conventional wisdom thinks.

    And, personally, I don’t think Netflix streaming is at all guaranteed to succeed. They have little control over bandwidth limits and I don’t see studios really needing Netflix in the long run. By the time that streaming is really feasible as a replacement to DVDs, what’s to stop Warner Bros. from just creating a streaming component to the Warner Archives store and cutting out the middle man?

    The only leverage Netflix really had was a loyal and large customer base. Hard to see how damaging customer loyalty helps them. It’s especially ironic considering they built the company by promising better (and cheaper) customer service than the alternative provided.

  8. Robert, I think studios will definitely try to create their own alternatives to Netflix. Many TV networks stream shows from their sites instead of centralized places like hulu. But what will the business model be? The attraction to Netflix for me at least is the all-you-can-eat subscriber model – it allows me to try out many things that I wouldn’t have otherwise sought out. But every studio can’t just create its own subscription service – who’s going to pay Warner Bros, Paramount, Universal, Disney, Sony, etc. a monthly fee to gain access to their individual libraries? So it’ll likely be on-demand, but that’s less consumer-friendly. Plus, as a consumer, I don’t want to have to figure out which company owns which things. I don’t care. I just want to watch it, and a centralized hub is much better for that.

  9. Amazon could be the savior… at least I hope so.

  10. Amazon certainly has the brand recognition and customer base. I haven’t looked into their streaming service – do they have an easy way to stream to your TV, without just cabling the TV to the computer as a monitor? (I mean, like via a Roku box or something.)

  11. The Roku works Amazon Instant Video. The problem with Amazon is that they are only offering their buffet streaming (e.g., Netflix type streaming) to people that have Prime Membership. I think this might change soon — especially with their upcoming tablet. They do offer a great a la carta/rentel service (much better than Itunes).

  12. That’s good to know, Antho. I might have to start looking into the Roku again at some point. I get Netflix and HuluPlus on my Xbox, but that’s about it. Sounds like Roku has beefed up their channels quite a lot.

  13. I agree – Qwikster gets my vote for worst business name of the new century.

  14. Robert Reineke

    I presume the studios can’t just band together into a streaming conglomerate because of anti-trust laws. Still, for parents, someone like Disney offering a streaming package for half or less of Netflix would be very attractive for a lot of parents. I think Warner Bros. could potentially pull it off too. Otherwise, I’d agree that we’re likely looking at a third party aggregater as a one stop shopping source. That said, I’m not sure what Netflix is going to offer in the future that Amazon, Itunes can’t offer. And Amazon and Itunes can link to other stuff that many of these entertainment conglomerates sell. Someone like Warner Bros. could certainly take advantage of linking to comics, soundtracks, etc. after the latest Batman movie, for instance. Heck, a gateway app through Facebook has a lot of potential.

    In the future, I’d be surprised if there’s an all you can stream plan that will include all of the recent releases. At least, a cheap plan of that sort. I’m expecting a tiered approach. Ala carte for those that don’t want any sort of subscription. An all you can stream plan which gives access to non-current releases and exposes the deep libraries. And a premium ala carte tier, maybe with a discount if you subscribe to another plan, where you’re paying a rate comparable to Redbox for each newer release you stream.

  15. This article with knowledge of how Netflix negotiates streaming rights, clearly states why this move needed to be done:
    http://abovethecrowd.com/2011/09/18/understanding-why-netflix-changed-pricing/
    Quick summary version: studios were charging Netflix for streaming rights based on how many customers Netflix has. Even if these customers were DVD-only customers, it was still costing Netflix to get this content. This was getting really expensive as studios kept asking for higher prices, so they were forced to separate the company to make the pricing cheaper.

    Robert, there is nothing stopping the studios from banding together to create their own streaming site. As that’s exactly what Hulu is, which is owned by NBC/Universal and FOX and Disney/ABC.

  16. Thanks for the link (and summary!), Matthew. So if they split the customer base, they only get charged streaming costs for the customers who are actually streaming? I guess that makes sense. But I’d think they could still make the queues talk to each other, even if the billing was separate. That’s the most inconvenient part of the whole thing. Well, that and having to tell people you have an account with “Qwikster.” I’m not a programmer, but I’m pretty sure you could have each site aware of availability on the other site purely via the public API, without even having to have the back ends integrated. On the other hand, Netflix’s data feeds are notoriously flaky, so…maybe not. Heh.

  17. Oh, and I think the major thing keeping studios from banding together is that getting all the studios, majors and minors, to agree on something like that is nigh unto impossible. Even hulu as a joint venture is pretty inconsistent – some shows appear the day after airing, others are 8-day delay, others even longer, some have five episodes, others have a full season, others the whole series, some are only on hulu+, others are only on the free version. From a consumer’s perspective who doesn’t care about the behind-the-scenes deal-making and only wants to watch their shows, it’s a freaking nightmare.

  18. Robert Reineke

    I don’t know if even for “recent television programs” Hulu comes close to being anything close to a monopoly. Not when a good chunk of the material never makes it to Hulu or is at the network’s websites. I expect that even if Netflix manages to strike streaming deals, the only thing they’ll be able to offer is one stop convenience. Which is why the latest move is baffling as it sends mixed messages.

    I do think that the Grand Unified Streaming Library that we all dream about is unlikely to materialize. Too many players with too many agendas.

  19. Hulu’s ace in the hole for me right now is the Criterion Collection. Access to that on my Xbox via streaming is worth $7.99 a month by itself. I could care less about the TV shows, for the most part.

  20. Guess they couldn’t sweeten the pot enough for Amazon.

  21. Way to go consumers, short-sighted selfishness just screwed you out of a better deal.

    • Ugh. Can you imagine trying to browse around Amazon for movie titles to watch? That site is hard enough on my eyes (and my computer) as it is.

  22. Kurt Halfyard

    Obviously, with the Kindle-Fire and other devices, there are ‘slick’ Amazon interfaces in the Queue.

    Personally I don’t really give a damn who provides me with the streaming service, just make it accessible, cheap with a wide variety…

    Of more pressing concerns is the 60Gb bandwidth cap in Canada for a $40-50/month internet plan. This has got to stop, as we move more and more online, it’s price-fixing at its worst, as the so-called pipe is nowhere near capacity.

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