Reed Hastings responds to criticisms and announces Qwikster
blog.netflix.com
blog.netflix.com
I'm trying hard but can't see the upside to this move. And I think this will cause a big hemmorhaging in profit for the short/medium term. Netflix has 12 million members that are on both the DVD and the streaming plan. These are the folks that got the 60% price hike. Although Netflix lost some customers (~5%) after the pricing change, that massive price hike put them in a position to increase profits, even with less members..
But now that Netflix is splitting itself in two, I can guarantee you a sizeable chunk of people who were just happy with the dual plan will end up picking one or the other.
That being said, I like that they're tackling video games. They ought to take a serious look at getting into competition with Steam, which is making $1Billion in revenue and growing, with high profit margins.
But the upside for netflix is those people that end up picking both.
The time to analyze this is 6 months from now when the figures are in.
My personal best guess about what they're about to do is sell off the DVD division.
I don't think we'll see a spin-off for at least a year, and probably bit longer.
How's that an upside considering that's what they currently have? Instead of one charge on your credit card there will be two that add up to the same thing. At best (for Netflix). This will not raise revenues.
DVDs-by-mail is a business with a very specific half-life. Was started in 1999, peaked in 20xx, will end in 10 years.
http://www.devside.net/blog/netflix-sinister-plot-called-qwi...
Also, video games!
This has the potential to be pretty large, actually, and GameFly is pretty terrible, in my experience.
Oddly, Gamefly just launched a streaming service for the PC, so just as Gamefly is beginning the move away from discs to streaming, Netflix is moving right into that spot.
I don't think game discs have much of a long-term future, but then neither do movie discs either. I wonder if this structuring is not just so that Quikster can be killed or sold to a chump (or someone willing to settle for scaling back the business) as soon as they begin to see the tipping point on streaming.
And Netflix streaming is not ready to carry Netflix forward. We won't be subscribing to Qwikster, and we're already looking for alternatives on the streaming side -- most likely, Amazon, who would never do something this idiotic.
This does not impress me quite so much.
I still have the impression that Reed isn't "getting" the two biggest complaints:
1) Customers who use both services are unhappy about losing the integration between them.
2) Quikster is a monumentally bad name
(Yes I know it's misspelled. I would look up the correct spelling, but that's exactly the point. How do you spell it without looking it up? And how exactly did they come up with the name with nobody on the team saying, "Hey, my Amway friends tell me it's not Amway any more, it's Quixtar." :-)
I don't think his crocodile tears now are going to win many people back, nor do I think his apology will have any effect on NFLX's course of action. Promising better communication but not having all the facts about how your spun off service is going to work doesn't lend much credit to his original apology. They should be bending over backwards to make sure that customers who are affected will have an easy transition. Though if this is a move to jettison those customers off onto a 3rd party buyer, then this will have been nothing more than Hastings proving he's a hypocrite.
It is times like this when a company needs leadership and that isn't an executive team afraid to share their vision and apologize when needed directly to customers themselves.
Could they be "using their time better"? I firmly believe, no they can't. Having real interaction with customers on their terms keeps them grounded. Many executive teams end up drinking Kool-aid(tm) by only taking customer meetings hand picked to show "how good we're doing" by their teams -- every business has at least one happy customer.
What really seems to be going on is that Netflix is getting ready to spin off its DVD business. That this seems so obvious makes the repeated apologies feel like an insult to our intelligence.
Yeah, we all love paying two bills each month, having to search for content two places, having our ratings queues forked and kept out of sync. Thanks, we're all so glad to hear that it's easier for you.
We'll make it even easier: find new customers. We're gone.
I would be interested in what you find as a good replacement because I might consider a switch if it were good enough. I just killed my cable and that was costing me ~$70/ month.
As to why separate, I assume that from an operational perspective it makes running the businesses easier. It is strange that some things e.g. ratings, accounts, etc. will be separate though, that's for sure.
I can't wait to see this play out!
Kind of glad to see video game rentals coming; too bad they're late to the party and will have to compete with Blockbuster, Gamefly, and Redbox.
All of these services have trouble. Blockbuster has a tarnished name (and I personally have never used the service), Gamefly has poor turnaround time and stock, and Redbox has awful stock and a high price.
Netflix/Quikster have been in a prime position to totally disrupt this for years. That they haven't pounced on it sooner has always been odd to me. It's like they consciously decided not to make money.
I love Netflix. And so my following criticism is intended to be constructive. The email and blog post that Reed sent out today starts off well...
"I messed up. I owe everyone an explanation........I’ll try to explain how this happened."
However, after writing the above, Reed doesn't really give an explanation, and based on my colleagues' and other commenters' reactions so far, it seems to have come off as a smug non-apology. Rather than a wordy but empty-ish post, what you should have written about the overall price increases was a simple explanation at how your sourcing costs have increased. You might think that since that information is public, and geeks like us already know about it, but the majority of your customers might not be as news-savvy. And on the DVD side, explain to your customers some of the challenges that you are facing there, how they have become different from the streaming side, and why you needed to separate the businesses. (I personally don't really understand this one - the only reason I can think of for the clean separation is if you wanted the option to sell off one of the businesses later).
I believe people would have been more sympathetic had you given a simple, honest explanation of your challenges, especially after starting your post like that.
I can't really understand why people get so upset about these changes because I can't find the catalog size/ low cost anywhere else. If anyone knows of a better service/value, I would be interested.
This isn't quite true BTW. Remember the 28-day window.
the 28-day window was solely a way to lower the cost of buying dvd's. Those savings went into buying more streaming licenses.
And the the grandparent - the dvd company isn't _required_ to work with the content creators, but it would probably be dumb for them not to.
Query: why does a radically different content acquisition model necessitate or suggest a split of the company? Would it not be less troublesome to make a new internal division focused solely on the DVD side of the business?
> I can't really understand why people get so upset about these changes because I can't find the catalog size/ low cost anywhere else. If anyone knows of a better service/value, I would be interested.
That they are splitting the interface has killed my long-term interest in Netflix. I tend to search for films based on whim and have an active love of long-tail content. I tend to throw several films at a go into my queues, being little concerned about what arrives and when. Each new disk a surprise; I end up using the Instant Queue as a priority filter when searching for entertainment. After the split my use case will be destroyed--I'll be required to visit two websites, which I won't as I can't do so idly--and consuming films becomes a matter of searching my own desires and making, as it seems to me, an arbitrary choice between formats. I once did treat Netflix as a library which could be idly passed through, picking things here and there off the shelf. It's all about the movies for me; format is a tertiary concern. Once Quickster is live the library will be gone. It'll be two properties competing for my attention and making the choice of format a primary concern.
I want to watch movies, not decide how to do so. Netflix is a luxury good, not an essential service. It _has_ to be so trivial to use that one does so without a thought because any luxury good that starts to incur costs--beyond acquisition--becomes less so. Netflix has the size, but by splitting they've reduced their lead over their competitors and it is no longer possible to view them after the awful website redesign, the price increases, the non-apologies and the site split as casually luxurious as they once were.
I'm still with Netflix, but I'll jump ship as soon as a competitor gives me that effortless feeling again. Netflix used to have it, Amazon almost has it and any one of the content holders might grow a clue, start their own streaming service and have it overnight.
Streaming is only a separate business model insofar as there are fewer degrees of freedom because of the studios; otherwise it's just a difference in how you deliver data. But that difference could be important from a marketing perspective. As Netflix pushes the streaming model, they risk damaging the DVD business by association. So it may be better to rebrand DVD business and carry it forward with a message concentrated around its (rather massive) benefits. That move is even more important if streaming becomes more competitive im the near future; war between cable companies, studios and streaming companies seems pretty likely, so the streaming space may become even more dangerous even while the conflict extends the life of DVD delivery.
So yeah, probably about as sound as a business decision can be. It may not work out but that's not guaranteed avoidable under the old setup either.
Amazon is the only other company that has a longer history of what I buy and what I like, and they're making some decent inroads into streaming movies now too. As soon as Amazon beefs up their selection and gets streaming videos available on my Xbox 360, I'm going to find it hard to justify Netflix altogether.
Better to disrupt yourself now than wait for some upstart to do it and react.
Heck, they sell lingerie and organic tea at the same time.
The "third company" might also make revenue from additional companies wanting a high quality recommendation system. Doing recommendation well is very difficult.
Obviously streaming is the future but the DVD part generates profits. The streaming only service - if it truly stands alone - is soon going to be competing with Amazon, Google, and Apple but without as much cash as these companies.
With their stock's price drop maybe Google or Apple will be willing to buy them. I don't see them surviving on their own without being bought out.
The bigger issue is splitting my ratings and thus my suggestions. I already ignore other places to rate movies since only netflix provided a tangible benefit to me. Split it, and it won't.
Hastings is the very definition of stupid: hurting himself, his company, and his customers -- all at the same time, and totally oblivious to it all.
His method to "fix" his previous mistake is to make an even bigger one. Unbelievable.
The reason for the split has to be business-related, and my best bet is to create a very clean separation of intellectual property. This among other things is why I find the post disingenuous.
Also, it would be a pain to find out a movie isn't available for streaming and then having to login to another account to put the movie in its cue. And I don't want to browse DVDs and put one in my queue when it's available for streaming.
It's rare that companies this size make such stupid moves; this is one of those times.
Thinking that Netflix would kill a good thing is pretty dumb and I sort of expected more from the HN audience in this case. Netflix is doing what they have to do, not what they want to do.
As stated I don't see how Netflix will survive long term.
I know a lot of non-savvy people probably can't make that connection, but I think the company will make it clear that Netflix is no longer the place for DVDs.
When I think of Qwikster, I do not think of anything related to DVD by mail. The only associations that come to mind are Friendster and Quixtar. It sounds cheesy and cheap and fly-by-night.
Current Netflix DVD+streaming customers will seamlessly have Netflix+Qwikster accounts. Those who care about just DVDs or just streaming would probably have already left or already transitioned to the appropriate Netflix account option which would leave them with a Netflix or Qwikster account in the end, no action on their part.
So how would this move motivate anyone who hasn't already left to look at other services? I've seen other people on HN complain about needing to maintain two accounts, but switching to Hulu+Redbox has that same downside, removing that as a motivating factor to look at those options. Switching to just one has the downside of losing recommendations and setting up a new account. I don't see why anyone who hasn't already left Netflix after the pricing changes would leave because of this decision.
Honestly, it feels like this board is being trolled by Netflix employees or paid PR, who see "no" problem with this move. I don't know a single person in meatspace who thinks these changes are good. Not one.
And people who were putting up (but unhappy) with the 60% price hike are now actively looking to switch.
Hastings is destroying shareholder and customer value at a pace only matched by HP's CEO at this point.
I hold my employer to certain standards and I do not defend anything they do automatically - for instance, I thought the way the plan split/price hike was communicated was just awful. So I'm not trolling.
When I first heard this plan many months ago, my immediate reaction was to look for another job. I have, perhaps obviously, decided to stay. One of the biggest reasons I've decided to stay is that I believe Reed is one of the most honest, hungry, and intelligent CEO's around.
These changes will cause short term pain, but I honestly believe the products will be much better after the split.
I'm disappointed by the remarks in this thread that don't give the Netflix team credit for understanding their customer base. The CEO gives a credible rationale for the split: two different kinds of business. DVDs for the long tail, streaming for convenience.
Given their machine learning and rating expertise, I bet their analytics gave them a good understanding of just how different the two mediums are. I'll bet people's streaming preferences are rather different than their DVD preferences. Probably so much so that there's less predictive value across mediums than some people in this thread seem to expect.
I'll bet they're virtually identical. Think of all their customers that have both streaming and DVD plans. What movies are going to be on their DVD queues? The ones that aren't available for streaming. Nobody puts a movie into their DVD queue because they want to wait two days before they watch it.
X is in streaming => X is not in DVD queue
And, I think all the constraint tells you is, don't suggest titles that are available on streaming for someone's DVD queue. I think affirmative suggestions are much more interesting.
To me, your idea that people's streaming preferences are "virtually identical" to their DVD preferences seems like you didn't mean it seriously. Hyperbole?
My own streaming habits are totally different from my DVD habits, not only due to limited availability of streaming titles, but also due to ingrained expectations. It's kind of like TV versus movies.
Without that, their competitors are now almost pure drop-in replacements for their product. NetFlix had an advantage (to me) in that everything was unified. Now that they're split, that's gone - and they have to find some other way to be better than the other offerings to justify me keeping my subscription(s).
The customer wants one interface to rule them all, not to care about the leaky parts within.
For the next trick, sawing the millions of babies in half...
Renting out DVDs is a different business model and one that will be obsolete in 2-3 years. Putting DVD rental prepares them for a future where they can fade out or sell the DVD business and go abroad with a simple offer for the Netflix brand.
Mostly though, I just want to have a decent selection in Canada. I was chatting with a friend about the possibility of doing a movie streaming startup, and I couldn't get past the fact that Netflix's biggest problems are not of their creation; they come from the studios. I wish them the best of luck, and hope that someday I might be a customer, but I'd hate to have to deal with the rights hassles that they do.
As an American, don't worry, the selection isn't very good here either.