Netflix Splits DVD And Streaming Businesses | Hacker News Reader

Netflix Splits DVD And Streaming Businesses

techcrunch.com

301 pointsssclafani197 comments

It seems I'm in the minority who thinks this is an over the top reaction to Wall Street pressure. It was clear for a number of years now that Netflix saw streaming as the future. But cutting off the DVD business like that... it's extreme. A lot of the movies are not available for streaming. Yes, their streaming portfolio is probably still the best (and has excellent children's content, my son watches it every night) but why force your users to decide?

The problems, as I see them:

1. The two parts (DVD & streaming) had different characteristics (bigger collection vs. instant gratification) that balanced each other. This synergy is now gone.

2. The attack surface for other companies has just doubled. Netflix's DVD handling is super streamlined (they have special sorters in postal centers) but there are other strong players like Redbox here. The streaming biz is nothing unique, Amazon can easily get to that level of collection in a short time. Divide and conquer? They just did it to themselves!

3. As others have pointed out, the reviews, and user histories will be split. From a subscriber perspective this is most undesirable, now I have to deal with two sites.

4. The quality of recommendations will suffer with less data (they weren't great to start with) after the split.

5. How will this affect developers using the Netflix API?

6. What will happen to Netflix's original content creation efforts, this will be a huge distraction to those. And they are vital.

Overall, this has a heavy handedness to it that makes you wish for the comfort of the likes of Amazon.

EDIT: This also makes my suspicions that Amazon is gearing up to a massive upgrade of their offering soon. Netflix probably tried to focus on streaming and stay ahead in the game. How? I don't know.

Another thing. Not all users have a device connected to their TV that works with Netflix (like an Xbox).

Nor do those same people want to watch a movie or a TV show on their computer.

Those people request DVDs.

I don't see the issue with keeping everything under one brand.

Netflix became popular because of their DVD-in-the-mail service. It's a shame to spin that off into a sub-par seeming brand. Just keep it all under one house but emphasize the streaming service.

It's not like they can't design their one site to give users an option on what they want (streaming or DVD-in-the-mail).

Keep it simple, stupid.

If they are doing this because of the economics of the DVD and streaming service, then nevermind.

Disclaimer: Netflix employee here

The main reason for the split is the realization that streaming service and DVD service are two completely different businesses that need to grow in completely different ways. For example, in case of streaming service, we've just expanded to Latin America and the Caribbean (to 43 new countries). In case of the DVD service, we're adding a new video games catalog.

DVD service is still growing - it probably won't grow at the same rate for very long, but right now, it's growing. Streaming, on the other hand, is growing at a phenomenal rate. Therefore it makes sense to not hold up the growth of one service for the other to catch up.

In the time (about 6 months) I've been at Netflix, the one thing I'll have to call out is the absolute, undeterred focus that the company has. Simply put, Netflix fundamentally believes that it's best to do one thing really, really, really well, than to do many things reasonably well.

Splitting the streaming and DVD service isn't so much due to lack of ability to design the website to suit both options, but really as an indication that they are turning out to be different businesses altogether.

While there may be some business sense behind it, as a customer, I don't see any benefit for me. It may make things easier for Netflix, but how does it make anything better for me as a customer? This is the second time Netflix has made an announcement about changes that were seemingly for some good reason, but left customers bewildered.

If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.

With the split, Netflix gets to focus entirely on streaming - make it better for the customer. Which means, more (and better) content, faster and better streaming service, Netflix on more devices, providing Netflix outside US and Canada etc.

And Qwikster gets to focus entirely on DVD service - which means expanding the DVD catalog, getting video game rentals for Wii, PS3 and Xbox 360.

As a customer, you get a much better Netflix and/or Qwikster experience. As a Netflix employee, I get to focus entirely on making streaming better, faster, available on more devices, and in more regions than we have today, without having to worry about compatibility with the DVD service.

He must of done a much better job getting the employees to drink the kool aid then the customers

Its probably just a marketing drone. The level of clueless ness at netflix is astounding. How about the we'll get rid of reviewers that are 40 times better than our clueless recommendation system and replace them at a future date with the getsapo facebook? Whats that you say gestapo facebook is illegal? Oh well we didnt want your opinions anyway. We replaced the customer with a robot.

Must...of?

http://www.urbandictionary.com/define.php?term=Must+Of

You can do exactly that without rebranding the product. They're called divisions. Give each one a CEO, but to the customer they should all be Netflix.

But divisions can't go bankrupt and die as easily. Qwickster or whatever it is has a death sentence. It's value wull be polished just enough to sell it off to suckers. And when it dies Netflix will just shrug.

> If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.

Depth of catalog is the most important feature for me. I especially like watching HBO shows without paying tons of money for cable. I also sometimes like watching really obscure films. Films which were released on DVD at one time, but where it may be hard to track down anyone to authorize licensing for streaming.

Which should I pick?

Before Netflix, I satisfied my tastes at the independent video stores around town. Netflix killed those. Naturally, I'm sensitive to any changes that might undermine the DVD service.

The best solution, as I've mentioned before, is to just allow obligatory licensing. Let Netflix convert its entire DVD catalog to streaming. Make it pay a fair statutory fee whenever it streams anything. If a content owner cannot be found, allow the fee to be collected by a designated rightsholder organization (something like ASCAP) until claimed by a verified owner of the content.

Did Netflix kill independent video stores? Or did Blockbuster kill them?

Fair question.

We had a few video stores that really specialized in the long tail. They sat right across the street from Blockbusters or Hollywood Videos. Stuck around a few decades, thrived on the indie image (sorted movies by director, that sort of thing). They made it through BB's reign, and passed away only recently.

But eh, that's my limited experience. I'd welcome more data. Call it a hunch for now, and an open question.

The local video store owner around here told me when it closed that it was netflix that did her store in.

How does splitting them up make them each phenomenally better? Why should the customer care about Netflix's internal organization? Make the same changes, just keep the top level name and details like accounts/recommendations.

If I buy a Macbook Pro it's from Apple and if I rent a movie from the iTunes store it's from Apple... They are completely different business units internally, but to the customer it's the same company and I can use the same account for either purchase.

One theory, discussed by Bill Gurley in the post below, is that it'll put them in a better negotiating position with the studios, who were trying to get a percentage of Netflix revenues (not just the streaming revenue)...

http://abovethecrowd.com/2011/09/18/understanding-why-netfli...

This has the ring of truth--otherwise, why not just better separate the divisions within the Netflix brand, as many (angry) commentors have suggested?

An additional possibility that occurs to me is that the movie studios' well-publicized dislike and fear of the streaming business is hurting the physical DVD business. Netflix has had to accept some pretty bad terms from studios, like delaying their availability of new releases, in part because studios see Netflix as a long-term threat. Quickster, on the other hand, should be able to build better relationships with studios precisely because they're not a threat to the studios' long-term dominance.

Basically, it's true that this is not the most customer-friendly move in the short-term, but the movie studios' strategy in the medium-term was to kill Netflix. "Continue to grow in the same direction" was not an option because the studios hated it, and this way both pieces of Netflix have at least a chance to survive.

As a paying customer,

I don't want my experience dominated by picking between one medium and another.

I want to pick from a unified comprehensive content catalog, and get the content on whatever medium is available/convenient.

I want a single unified queue which I can append and rearrange with ease, not have to maintain 2+ queues of content separated only by medium.

I want to add title X with the intent of seeing it on pristine Blu-ray, and then on a whim watching it right now when streaming rights are negotiated - _without_ having to do a deliberate search on another site ("nope, not streaming yet").

FWIW: I was at Kodak when they decided that the distribution model was more important than the customer experience. You remember Kodak? used to make film for cameras? film? nevermind. Big name in the photography business, now bulldozing five miles of disused manufacturing buildings for tax reasons.

Splitting the delivery departments was smart, realizing streaming is the winning long-term move was smart, unifying the customer-facing content selection to cover all media would be smart. If I pick a title, I want the choice of media subordinate, not dominant.

From the customer's perspective, they are not two separate businesses. They are one, strong business (well, were).

Streaming is most valuable when DVD is (a) there as a backup, and (b) managed with the same system.

Netflix has seriously decreased the value of their streaming offering by separating out the DVD and de-integrating their systems.

There is basically no reason to pay for Kwikster now (terrible name BTW), and the streaming is now an extra cost. We'll have our kids use Amazon Prime, which we already pay for. They're much less choosy for content anyway, and it cuts off another monthly bill.

Someone inside of Netflix should have had the balls to tell your CEO this was a stupid idea and customers would hate it.

You don't speak for all Netflix customers when you offer your perspective.

I joined Netflix because of streaming and I prefer to look at streaming only. When I joined netflix I got a DVD and didn't return it for a year. I didn't want to return it because I didn't want to get another DVD. In search results I never wanted to see the DVD results. I wanted to see what I could watch now. Content is such a key part of this. If the streaming service had the same or more content than the DVD business, nobody would care. But since they are still building that collection and struggling with content owners, people are freaking out.

Time will tell whether this was a stupid idea for the market at large. As a streaming customer, I'm indifferent. As a tech pundit, I think it was an important strategic move and I applaud Netflix.

I think you're throwing out the baby with the bathwater. There are straightforward technical solutions they could implement to address your complaints, but for those of us that aren't so extreme, there's no easy solution to the way they're breaking our desired usage.

I am a Netflix customer. I don't care what they do with their DVD collection. The only reason I occasionally ordered a DVD is because it was available in my subscription. Since the split, I've canceled my DVD service. I hate DVDs. I don't want to wait for them, I don't want to handle them, I don't want to remember to mail them back.

To me the split has zero impact on my perception of the value of the streaming service.

I looked at Amazon about 6 months ago, and there was no content of interest there that was not also on Netflix.

I am also a Netflix customer. I too canceled my DVD service. I haven't ordered a DVD from Netflix for months.

I had previously thought that if I ever did want to order a DVD again (for something not available on streaming), I could just reinstate the DVD service and order it. Now, it appears, I would have to sign up with a totally different system to get the DVDs. I'm probably not going to bother doing that.

I am baffled as to why they would split the DVDs into a different business altogether. It's a different product, sure, but need it be a whole separate business? I trust it makes sense internally to Netflix, and I presume it is projected to be more profitable. And if so, then I can hardly blame them for doing it. But as a user, I don't get it.

I've been following Netflix for years and 'Focus' is Hastings' singular theme. They dodged cloning Hulu, Redbox, Youtube, various 5$\movie rental options, GameFly, etc. They ruthlessly cut out things like Friends features, used DVD sales.

I'm surprised the reaction here is so negative. Working for large companies the theme is usually waste, and inept decision making. This is a result of the size of the decision apparatus. I would think a lot of people here are fleeing that kind of a work environment or are at least aware of it.

Wearing a customer hat this sucks in the short-term, but perhaps pays off in the long-term if the internal decisions made are substantially sharper. Now you don't have meetings where people are wondering why stupid decision X was made, and the answer comes back 'because of this Y interaction with our legacy mail service' which has no long-term role to play.

It's hard to see from afar the complexity of the decisions that goes on at Netflix HQ every day. I don't think that's going to be appreciated when people are wearing their customer hats. Clearly, the short-term customer perspective is poor.

The problem I have with it is that it suggests a shift from customer focus to internal focus. That's certainly how they talk about it, and it's another kind of large-company error.

The happiest face I can put on this is that they've decided to focus on a specific kind of customer (the undemanding kind who will take whatever turns up on streaming) and kiss off the more discerning sort (who really valued the breadth of catalog, and didn't care as much about the medium). Which may or may not be a good business decision, but it's unsurprising that those customers are pretty cranky about it.

Not one of my friends has had a positive reaction to this. Not one. A large percentage of them are expressing very negative reactions.

Anecdotal, but I suspect this will be the least popular move the company ever makes.

I don't quite understand this either/or "let's focus on the big thing" approach. I think most everybody agrees that the streaming business is growing much quicker and is the future. But as others have noted, the businesses are not independent from a user perspective, they form a synergy.

For example, when Motorola split into mobile/home and public safety/enterprise divisions, this made quite a bit of sense (and they were desperate anyway) because there was little overlap between those. To a lesser extent you can understand HPs spinning off the PC business to focus on printers, but in this case, although the underlying delivery mechanisms and business cases are very different both are DVDs!

Think of companies going the other way, consolidating information to create user synergy, i.e. Google adding tweets to search results.

> Another thing. Not all users have a device connected to their TV that works with Netflix (like an Xbox).

Some TVs and most Blu-Ray / DVD players these days play Netflix without extra anything hooked in. Netflix has done a really good job making its streaming offering available on a TV without additional hardware or tech skill.

The attack surface for other companies has just doubled

If anything, that is an underestimate. I really can't understand what they are thinking. Since I am interested in both DVD and streaming, up to now I was completely locked into Netflix because of the integrated system - my "Instant" queue is just the subset of my DVD queue that is streamable.

If they break that link, and I derive no gain from being BOTH a Netflix-DVD and a Netflix-streaming customer, what is there to stop me switching to Amazon or other competing streaming service tomorrow? Absolutely nothing.

This is such a bad decision I actually can't even begin to understand how it made sense to the dude for the whole length of time it took him to write that announcement.

Edit: and another thing. Am I expected to believe that a technology company cannot figure out how to run two different business arms with a single customer-facing UI/website? This is something frigging clothing companies do every day.

> Am I expected to believe that a technology company cannot figure out how to run two different business arms with a single customer-facing UI/website?

Even worse, the technology company we're talking about already does that and has done it for years.

What's to stop you from switching to Amazon? Have you tried watching a movie on Amazon? Way less usable and its hard to find movies sometimes. Netflix has a way better interface and what I find myself doing is checking on Netflix first, and then only if they don't have it, do I go to Amazon.

I've watched things on Amazon Instant in the past and didn't find it any less usable. In fact, I actually find Amazon more usable since it works on my operating system.

It's kind of a moot point to say "Well, Amazon has a crappier interface, so Netflix is safe", since Amazon can always update its interface to something more friendly. The important point is that Netflix has given up one of the major incentives to use its service -- the integration of DVD and streaming.

I think the parent's point was, that is the case -now-. But that could change with one new release of Amazon's steaming service. Previously, even if Amazon released a new offering, the mailing service added an additional incentive to stay with netflix. Now if Amazon releases a better streaming option, you can simply dump Netflix streaming.

Amazon's streaming movies work great in linux. Even better than youtube fullscreened.

Amazon's online collection is much, much larger than Netflix's online collection. Are you referring only to their Prime service?

they've also given up on the complete Netflix brand recognition. Going with a completely new name is going to lose all the loyalty they built up. While you can get movies from practically anywhere would may Netflix unique was there streaming and DVD services. This is deadly instance of creating multiple targets for yourself, they were deathly stronger together.

What is there to stop me switching to Amazon or other competing streaming service tomorrow?

The quality of those services compared to Netflix.

Netflix realizes that they have to move quickly to cement their dominance in this field over the long term. If they are held back by their legacy business, they are going to die quickly. They would rather risk pissing off their biggest fans than jeopardize their stake in streaming.

I just don't understand this argument. In what real, actual ways is Netflix plausibly "held back" by shipping DVDs to folks? And in what ways is this fixed by spinning that business off in such a way that the exact same people will now run that company?

Because it seems to me that this is a lose-lose proposition, for the reasons stated by the commenters above.

1. I think that's your best point, and it's true that the real test will be if they can grow their streaming catalog enough.

3. It's not as if this HAS to be that way. In a blog comment Hastings said initially both sites would have all existing and current data. We're technologists here, is it hard for anybody here to imagine how sharing that data would work?

6. How will it be a distraction to now have a company that is solely focused on streaming -- which is the umbrella under which the original content is being created?

Wouldn't you agree that the economics of show-running fit a lot more acceptably into a business where the primary cost is content licensing vs a business where the primary cost is dozens of physical warehouses and massive USPS fees?

Regarding point 1. Netflix just created a huge discoverability problem. We ditched our streaming package and became a DVD-by-mail customer only. Not for lack of want or desire to be a streaming customer though. I'm just not all that crazy about paying their monthly fee for TV shows (I already have cable) and backlist DVD content.

We like movies. I can't see how we're not a target customer, but I can't get most new releases on Netflix streaming. Now that streaming and DVD-by-mail are separate companies, how will Netflix convert customers? With completely separate websites, what opportunities will exist to inform me that the movie I'm about to receive in the mail is also available through their streaming plan? I'd like to know that, because the moment they lock up deals for the content I want, I'd be on board.

"With completely separate websites, what opportunities will exist to inform me "

Your comment here is echoed all over HN and the Netflix blog.

Obviously being a separate website in no way prevents them from engaging in that sort of cross promotion. Strikes me as common sense. Comments like yours seem to imply an airgap between the two sites. I haven't read anything official that should suggest that.

That air gap is being created by Netflix. Why would they separate the sites and businesses so distinctly if their intention weren't to create an air gap?

Because they have fundamentally different cost structures, and each will benefit from a dedicated CEO who is accountable for results and responsible for strategy?

You really think that the respective sites will have no integration? Not a single-sign-on user account? Not an "Available on Netflix" link? Why? It makes business sense for both units and it doesn't impede any of the objectives of the spinoff.

It is not indicated via techcrunch, but in the original announcement it was explicitly stated there will be no integration and separate accounts:

"A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated."

http://blog.netflix.com/2011/09/explanation-and-some-reflect...

I agree with what you that it makes sense, but the message Netflix is delivering tells me that Netflix is headed in the opposite direction of what makes sense.

> I can't see how we're not a target customer > I already have cable

Netflix is a direct competitor to cable. I don't have cable and I use their streaming platform exclusively. I am their target customer.

They'll have a tough time convincing the older generation to ditch cable. They know that. So they're ditching you, instead. As things move along, you'll end up in the minority. At least, that's what Netflix is hoping will happen.

I think you're probably right. I just found a website (feedfliks.com) that let's me see a lot of details about my Netflix usage. There are some pretty clear patterns there. Television shows, comedy specials, and the type of movie you'd typically see on TNT, FX, or AMC are available on Netflix Streaming. Theatrical release movies are not nearly as popular. So, you pretty much nailed it. Netflix wants to be Comcast. They don't appear to care much for their movie service customers.

As it turns out, I've been using giving Netflix money to be a company they don't want to be. Silly me.

And this is why Netflix' business model is doomed. There is no way for them to compete with Comcast, who already gets $50 each month for Internet alone.

There's just no way the content creators are going to give Netflix better terms than they give cable operators. None. Won't happen.

And Netflix cannot afford to pay what cable pays, because it's all added cost to them.

Netflix is between a rock and hard place, they know it, and they did the absolutely worst thing they could do. They should have just let things ride, milk the cash cow they'd created, and see how it plays out. Instead, they shot the cow, spilled the milk, and seem oblivious to the overwhelmingly negative reaction from their customers. sigh

DVDs are on their way out and streaming is now in and he's putting all his efforts into the streaming business.

What if Microsoft did something similar? What if the CEO in 1998 put all his efforts and attention into the Web? Results for Microsoft might have been much better.

> DVDs are on their way out...

Streaming has a unique disadvantage: you have to haggle with each individual content owner.

Yes, it's cheaper to move bits than stuff. Much. But licensing is a pricey hassle. It's a huge part of the comparison, and as content owners get savvy, it will only get more expensive over time.

This should be a signal of how much more right we got the law with physical media. We all want DVDs to be dead, sure. But DVDs would die tomorrow if we just set up an obligatory licensing scheme for this sort of content. If you distribute a movie, Netflix should be allowed to stream it, and pay you a fair statutory fee.

(This isn't some a radical new idea or some Communist scheme, it's basically how radio stations work.)

Until the law is fixed, DVDs will stick around, lingering on.

Maybe the HN crew wants DVDs to die. But none of my non-technical family has any problem with DVDs. They work in just about everything. They're easy to lend out. They're easy to find (both in stores and when sitting on a shelf in your house).

For my part, I still prefer DVDs because I actually like owning the disc. But more than that, I have a 25 Mbps FiOS connection and somehow at least once a week when I'm streaming something, Netflix dynamically changes the quality. It's more annoying than skipping due to scratch discs and the quality comes out terribly. I have no idea if Verizon's playing games, but as long as ISPs lose out with streaming media, I wouldn't want to bank on that business.

I'm not looking forward to a world without physical media where content providers and ISPs can dick us around with arbitrary pricing for content.

That's why I like iTunes, particularly now that they allow TV shows to be redownloaded so now I don't have to worry about using up a ton of space.

And what happens when Apple decides to (or is forced to) stop offering those shows for re-download? It's still a "licence" for you to be able to download them, not the same as physically owning a copy. (though slightly better, since you can just not delete the videos, and store them yourself)

Microsoft is perhaps the most business-savvy major tech company around. I for one am glad that we didn't have this kind of disaster back then -- Microsoft has always recognized and capitalized on its bread and butter: Windows and Office. These two are the workhorses, the crown jewels in the Microsoft empire, and almost everything else that Microsoft does is centered on strengthening the positions of these two cash cows. Splitting these into a separate entity would have been utterly ridiculous.

Again, Windows and Office are and always have been the lifeblood of Microsoft. You really think they should have decided to let someone else make all of that money in 1998 and retooled their whole business to keep only Hotmail? I think that would have been disastrous for MS.

Fact is, investors think differently. All you need to do is look at the stock price.

Not to mention the diminished role MS has with developer mindshare.

Obviously, Windows is a great cash cow and I'm not saying they should have spun it off. I'm saying a VP should have taken responsibility for it and the CEO should have focused most of his/her energy on the Web.

"...A lot of the movies are not available for streaming."

Quite a lot, actually, including the majority of new releases. And this will only become more evident in the eyes of streaming subscribers when they no longer see most of the new titles listed in searches. (Even the presence of those "Only available on DVD" titles in streaming-service SERPs lent a sort of subconscious, psychological indication of the robustness of Netflix's library).

Hard to see what Netflix stands to gain here. Streaming may be the future of media consumption, but there are still a few big hurdles to leap. Placing all the eggs in the streaming basket now feels a tiny bit premature. It's entirely possible now that streaming will win the day, but it'll be a competitor (or two) waving the victory flag.

I'll be interested to see if the split compels media companies to make more content available for streaming. Perhaps that's part of the logic behind splitting out the business; Netflix may have reasoned that it will put more pressure on content holders to license that content for streaming if it won't be available on Netflix at all anymore. In this scenario, it seems that Netflix may be throwing the DVD arm under the bus in hopes that it will strengthen their streaming offering.

My first thought was: Now Netflix's streaming content won't be bound by DVD by mail quotas.

if that is their intention they're going to be an far rude awakening. Netflix's subscription-based model will never support the new releases that are currently offered on pay-per-view sites. They are now also going to be competing with cable companies who will most likely always beat them with new releases. They should've just made their DVD operation more efficient. The intangible value added to the company is completely underrated.

Content is everything... and Netflix is finding that losing Starz (and by proxy, Disney and Sony catalog) really really hurts.

Why did they lose Starz? Because they are too successful, and their suppliers are nervous about Netflix. Too many subscribers = too much cost.

To reduce their size they'll need to split the two services, and let each one compete directly.

To be honest, I would love to have Netflix's problems. Growing too fast and having to pivot your business model to keep your agility? Netflix is operating like a startup. Good for them.

Regarding the API, Netflix announced several months ago that the API was going stop supporting DVD options all together: http://techblog.netflix.com/2011/06/upcoming-changes-to-open.... This makes me wonder how long they knew that this split was coming, or if it is just a coincidence.

This was discussed in this thread last night. http://news.ycombinator.com/item?id=3012244 ethank points out that the qwikster.com domain name was registered in May 2010.

I'll throw it out as a side note, because in all the discussions I've read on Netflix of late no one seems to mention it: Netflix has FANTASTIC kids content available for streaming. My kids would revolt if we cancelled our service. That alone guarantees my business until there is a truly compelling replacement. I cannot believe we're the only family like this. And while this is probably not a large enough market to sustain them (let alone power growth), they do seem to have a pretty good sense of how people engage with their content - and my guess is that their deep long-tail of streaming content actually holds more appeal than might be guessed. To be honest, my only frustration with them of late has been the fact that my streaming queue is overrun with "Bob the Builder" & "Caillou" when I'm actually looking for something to watch. Perhaps this new, sharper focus on the streaming side will enable them to improve things like this? Here's hoping they survive this transformation and emerge stronger for it.

Totally agree. It was a no brainer to cancel the DVD side of our subscription, but the streaming, no way.

Amazon Prime streaming is more than enough for children, and most families already have it.

And the kids don't care at all who they get the shows from.

I expect Amazon to continue to aggressively compete in this area, not to mention Apple and someday, Google. Netflix is giving away their core advantage -- a huge content library and DVD/Blu-ray backup for anything not-yet streamed. No one else has that. Now they're just like everyone else.

> Amazon Prime streaming is more than enough for children, and most families already have it.

The estimates I saw from February were 4-5 million Amazon Prime customers. That's much smaller than Netflix, much less "most families".

But Amazon Prime streaming is not (yet?) available on the AppleTV that the kids use. Sure I keep meaning to jailbreak the darn thing but I never quite find the time to do so.

Netflix has huge penetration into hardware that Amazon does not have and to me that is a huge leg up for them. Also I can not believe that Netflix does not have an ace up their sleeve, i.e., a serious infusion of streaming content. However, I would be in awe if they did not have that ace up their sleeve and are instead trying to push the content providers into the present so that we can get on with the future.

>>I cannot believe we're the only family like this

You certainly aren't..They actually have a tab called "Just for kids"

Yup. My kid is only two, but even I have noticed that Netflix has 6 full seasons of Spongebob and nearly 100 full episodes of Seasame Street. It's pretty important to me that my child not be bombarded by advertisements before he gains any critical thinking skills, so I'll be a Netflix customer for a long time yet, I'm sure. I'm just hoping they use this extra cash to get some better content (or create it themselves) for me.

Wow. I have a 4 year old and a 5 year old, both love getting to pick stuff off Netflix and not once did I think about the fact that there are no ads... that's such an awesome point in Netflix's favour and I can't believe I never realised it before.

Plus, for me at least, it's good in that it forces them to compromise and work it out among themselves. They can watch whatever they want on it (obviously, within their genre) but they have to work it out between the two of them what they are going to watch. With the TV, it's closer to "on or off".

Yes, it's really frustrating that Netflix only allows streaming from the primary account and none of the sub accounts. Anything we stream shows up on the recently watched list for our kids to see.

In my opinion, this is definitely the obvious and correct move. It isn't a surprise that Netflix wanted to head towards a stream only business model, but this makes it crystal clear that Netflix is (at the moment) a premium streaming video company. I mean look at them, thats all they do now!

The still face some big hurdles with all their streaming content deals, and the outcome will likely be what makes or breaks the Netflix we all know and love. Premium content providers (HBO, Starz, and now AMC, etc...) will always hold the upper hand here, and many already have streaming products in place. If not, its rather trivial to create nowadays.

My prediction: Netflix becomes an original content powerhouse that harnesses the sort of democratic whimsey of the web. "House of Cards" is their toe in the water. I really see no other direction that is feasible with content providers fragmenting into their space and hoarding their popular original content.

Interesting prediction. It would make a lot of sense to produce/fund more original content. It's definitely the direction the streaming business has to follow. If cool and original stuff is on Netflix only, it will be good for them and other original content producers may be more inclined to be there.

"this makes it crystal clear that Netflix is a premium streaming video company. I mean look at them, thats all they do now!"

Yeah, well...now they're providing a commodity service. Renting DVDs through the mail has/had a huge infrastructure advantage for the established player. Streaming video over the internet? There are dozens of sites that do it well. The technical advantage is far less sustainable, because it isn't nearly as difficult.

Once you're running a streaming-video business, the only differentiating advantage is content -- and you're in a weak position to negotiate for that content. Whereas before, the studios needed Netflix to distribute their content to consumers, the internet has turned the tables.

Delivering streaming media content has some infrastructure costs as well. Bandwidth is not free (it will get worse if Net-neutrality dies) and one also needs to have a CDN to effectively deliver content to different geographies.

Netflix has one thing that most streaming video sites don't, and that's massive market penetration. In my living room, I have 5 devices capable of Netflix streaming, as well as every mobile device I own.

Amazon is probably second with their offering, and even then I don't own any devices that can stream Prime Instant Video (my TiVo can download from Amazon, but isn't compatible with Prime's streaming). Any Netflix competitor has a huge hurdle to overcome to be as successful as they've been.

They first obtained that advantage through their infrastructure investment in DVDs though, not through steaming. Any Netflix competitor now has a much smaller hurdle to overcome to be as successful as they've been. From the customer's viewpoint they went from having a relationship with a single company that had two offerings to a relationship with a company with a single offering that is somewhat lacking.

If I were the new CEO of Quixster or Kwikstr or whatever the hell it is, I would immediately start looking around at who I can partner with to get streaming content. Actually, isn't Quixtar the name of a MLM scheme?

This move makes no sense. Seems like Wall St. pandering garbage.

> Actually, isn't Quixtar the name of a MLM scheme?

Yes, Quixtar is Amway.

"Netflix has one thing that most streaming video sites don't, and that's massive market penetration. In my living room, I have 5 devices capable of Netflix streaming, as well as every mobile device I own."

And those devices are electronics, which have the shelf life of dead fish. You have to stay relevant to make it into the next generation of products. Nobody is pre-bundling a service that a) has a small subscriber base or b) doesn't have good content.

Moreover, many devices (like my own television) let you trivially download apps from any provider. I got amazon streaming on my television on the day it was announced. Being installed on a device isn't a competitive advantage when anyone can do it.

I think this is a good move simply because the two divisions have contradictory goals at this point.

For example, the Qwikster division should be looking at finding ways to deliver DVDs quicker (Kiosks for example). But that's not something that would ever occur to Netflix because they're focused on streaming as the future.

Which is where the contradiction comes in. It is hard to run a business unit when the goal of the company overall is to kill off your unit.

That said I think announcing it today is foolish. Even if it was their original plan to do so announcing it right after a stock drop makes the decision look rash. IMHO they should have put this announcement off for a couple weeks.

I don't think any shareholders of consequence are going to think they just made this decision a day ago. Maybe they announced it after the stock plummeted because the assumption is it won't go down that much further, where a 2nd announcement after it rebounded might send it down yet again.

Also I don't get the creating of a new brand altogether. Netflix is a popular brand and a household name. Who knows qwikster? Looks indicative of a future split up of the company to me.

In terms of stock timing, I have a hard time believing that this kind of move was completely held secret. This takes a lot of prep work, and whispering has to go on, and rumors spread fast to connected people who can profit. I suspect the excessive reaction last week to the news of that week may have actually been boosted by inside knowledge about this move today.

So if any of that's true, you can't exactly assume that last week's stock move would have been the same in an alternate world where they weren't going to announce this today. At any rate, appearances generally give way to fact eventually.

"...the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa."

Wow. I had previously thought that their pricing change was forcing consumers to effectively choose between streaming and disc-based services, but didn't expect that they'd actually go this far and completely cut the cord between the two.

Considering the how much less efficient it is to mail movies than it is to download them in an age of high gas prices and fast internet, Netflix killing or spinning-off it's dvd service was an inevitability. I'm just not sure that right now the streaming service by itself has the selection to keep subscription numbers high enough to maintain sufficient leverage with content providers.

Momentum is very important with the type of model they have: the more content Netflix loses to studios who start their own streaming services, the less appealing the Netflix service becomes to subscribers, which both weakens the argument for studios to stick with them due to the size of their subscriber base and also sets a positive example of succeeding without Netflix that other studios can follow.

My guess is that the logical split has to do with future contract negotiations. Netflix has no ties to DVD rentals, so maybe this aids them in the deals they are able to make.

As I understand it, most of the deals between Netflix and the studios are revenue sharing deals. So the studios have a vested interest in increasing whatever metrics they are basing the revenue sharing on. They could see streaming availability as hurting the DVDs 'sales.' Though this would apply industry-wide anyways, so I don't know if this would really put the streaming side of things in a better negotiation position.

Yep. Also netflix has no value add in the streaming business. Streaming a video just isnt that hard and they are not content owners. The content owners have no incentive to put their stuff on netflix.

The content owners will try to insert ads and cut out middlemen.

On the other hand the customer is shafted big time by being forced to remember what he wants to watch on dvd separate from streaming.

Biggest downfall here will potentially be the separation of ratings. Dvd and streaming customers will have to rate dvd first and then see it as unwatched in streaming later?

I think of Netflix as my repository for "what I have watched" and teller of "what you will want to watch". I don't tie the brand to a specific delivery mechanism (dvd or streaming).

Qwikster is a terrible name, and this is a terrible move.

Hastings is now in competition with that guy running HP to see who can destroy their company first.

Maybe Ballmer will get in the game and spin off Windows/Office from Microsoft, and rebrand them "Facetown", while proclaiming Bing to be the future of the company.

Unbelievable.

Update: I predict Qwikster is dead and buried within 5 years, and someone else pushes past Netflix on the streaming side to be the leader there.

This move is unbelievably stupid. Any trust I had in Netflix over the long haul is gone.

>I predict Qwikster is dead and buried within 5 years

This is the direction the physical DVD side of Netflix's business was going anyway.

Netflix employee here.

I've been reading all the comments here and at Reed's blog to understand what everyone has to say about the split. Internally, we've known about the split for some time now.

Why do you think this is a terrible move? Your comment has a lot of unflattering comparisons, but doesn't explain why the move is stupid.

Also, you're probably right that DVD as a service will not last forever, and Reed understands that too (he mentions this in the post as well - http://blog.netflix.com/2011/09/explanation-and-some-reflect...). DVD service may not last very long, but right now, it is a growing business.

> Why do you think this is a terrible move?

Because the two services work well together. There are lots of movies and shows that you can't stream, but you can get on disc. Your data about what discs I rent improves your recommendations on the streaming side; and having one UI for both services makes me more likely to get them both from you. If Qwikster fully splits from Netflix, it'll have to compete on its own with other disc-only solutions.

Maybe you're going to radically improve your streaming library Real Soon Now; but, if so, the time to split is after that improvement, when streaming can better stand on its own.

Just to share my personal experience: My wife and I have been Netflix customers for years. Streaming is pretty convenient for us, but two major problems: 1) lack of content and 2) lack of subtitles / closed captions. Captions are important because we watch movies at night, after the kids are in bed. That means we keep things are quiet enough that you occasionally miss a line of dialog. Because of those two issues we're back to DVDs in the mail. Here's my point:

While the services were integrated we could play with the online service (wait for it to improve) while still getting DVDs through the mail. It didn't cost any extra to try a streaming movie or two. Now that they are separate, checking up on the online service has a much higher cost, both monetarily and in terms of effort. Personally I'm disappointed, I liked streaming a lot, but for us it just wasn't quite there yet.

As others have said, the two services are complementary. I might like to know that I could watch a movie instantly instead of waiting for it in the mail, even if that's what I'd planned to do. Or that I could get a DVD in the mail because it isn't available for streaming.

As a customer I feel Netflix cares more about promoting streaming than keeping me as a customer. Rather than holding the door open so I can take my time converting to online content, I'm being pushed. Maybe right into a the arms of a competitor, because I'm not feeling the love from Netflix.

I think Netflix has basically two kinds of customers: mainstream customers and long-tail customers. The mainstream will be fine with this, but for those of us who like to draw our content from the long tail, it sucks.

My wife and I were on streaming-only for a few months, but last month I upped our account to streaming+DVD again for just this reason -- the stuff we wanted to watch just wasn't available, and didn't look like it was going to be anytime soon.

Netflix has closed captioning now. Works great on my Roku 2.

It's a terrible move because you're splitting the business on an irrelevant implementation detail. There is one thing at the root of all this from a customer's perspective: watching TV and movies. Netflix as a unified DVD and streaming solution facilitated this well for reasons already mentioned; you could stream if streaming was available and desirable under the circumstances, but you could wait for the DVD if you had a good reason to do so, and these services both cooperated to enhance the customer's single experience and goal of watching movies.

There really is no reason this should not have been a significant internal restructuring offering the necessary resources to both divisions instead of a major public split like this. It's simply not a customer-facing issue. Now, as DVD becomes less and less relevant, Qwikster is doomed to an eventual shutdown, its users will lose their data (recommendations, rental history, reviews, etc) and/or Netflix will have to merge it back in to its database anyway, and there are just a myriad of other inconveniences from the user side.

Essentially, you broke something that was working well for its customers for the convenience of internal management and politicking.

It would be a debatably good move if the streaming catalog were deep. It is so shallow that during the DVD+streaming price hike/split, I canceled the streaming portion.

And, note that I'm setup perfectly for streaming. I have no TV/cable/dish. I get all my content from downloading TV and getting movies from you. If I could get TV from you on streaming, I'd abandon torrents.

It is really horrible watching Netflix implode like this.

From the outside it appears that Netflix is reacting late to market forces and business partners. Netflix had seemed to be growing in size and more importantly 'clout'. The 'media biz' is run on relationships, trading huge favors and controlling vertical markets. If Netflix has little influence or trading tokens then it will eventually be marginalized. Blockbuster seemed to be just just what it's title implies for a while, now it seems more like a blip.

Netflix customer here.

It's a terrible move because how I go about finding a movie to watch is very important to me. I want to be able to search for movies, browse a genre, or rate movies and get recommendations all through one easy to use interface. I will decide whether I want to stream the movie or wait for it in the mail. How you handle it internally I don't really care. I'm even willing to pay for the services separately.

Now, let's compare to cable. If I sign up for Comcast cable with HBO, I would also pay for the services separately. But, I don't want to have two boxes with two remotes sitting next to my TV just so I can watch HBO separately.

When I log into amazon.com I can buy physical items like DVDs, or purchase digital items like eBooks or MP3s, or I can stream movies. Maybe they're handled internally by different departments. I don't know and I don't care. All I know is that I can do everything from one interface with one account. I don't need to go to amazulu.com to watch movies and kindlebooks.com to buy books.

Simply put, convenience is a HUGE value. Something that I am willing to pay for. I didn't even sweat the Netflix price hike because the value was still there for me. But if you're going to make it HARDER for me to find and watch a movie, I don't see how that's worth paying for.

Netflix is wrecking the huge advantage they have. Now it will be just another streaming company. Netflix has leveled the advantage it had, opening up huge opportunity for competitors.

I've been a Netflix customer for over 5 years. To me, Netflix is a company that does DVDs-by-mail well, and also trying to grow online streaming.

Online streaming as it is right now is a baby. It grows fast as every healthy baby does, but it can't be an adult yet as DVD business is. May be it will grow enough in the next few years, may be. So when Netflix announced separate price for DVDs and streaming, i cancelled streaming immediately, because it is not ready for me yet as a separate product I'm willing to pay for. It was good enough to have it as an addition, as a nice extra feature, but not good enough to pay extra.

So, in my opinion, there is (was?) one thing that Netflix is(was?) doing well, and now, what is this company doing anyway? What are their business? Oh, it's a video streaming over the internet, just like Hulu or Youtube?

I think Netflix just shot itself in the head.

The elephant in the streaming office is the lack of blockbuster titles, many of which are only available through their DVD by mail business. If they're betting everything on streaming i'm guessing (hoping) that they've also figured out a solution to this problem. Otherwise, they've lost the big benefit of credibility that DVD by mail brought to their service.

This split might be what they needed in order to secure more streaming deals. Time will tell.

Eh. I'll just use Redbox for that. Faster anyway.

Redbox is great. I love it. Redbox + Netflix Streaming + Hulu Plus should get you most of the movies and TV shows that you need.

The answer to getting new releases is obvious and I'm surprised they haven't done it already: pay-per-view. 3.99 for new releases, back catalog is free. What Amazon does, except they would have the advantage of the massive customer base. They could probably work out some deals with the studios where if a movie makes X amount on PPV it gets to move to the back catalog for a minimum of 6 months. Having that customer base would give them the leverage to make those types of deals.

Just for posterity's sake, I'll join in on the "this is a great move" side.

I know there's a lot of wailing and gnashing of teeth by current Netflix customers with established movie watching habits who will now face more inconvenience.

However, I use Netflix exclusively for the streaming, so I'm very excited about the future here. If they can sell off the Quikster (sp? dumb name) business and then use that capital for all sorts of good streaming stuff, then that's good for me.

I remember reading an interview with Hastings a long time ago where he said his vision was all about streaming content (hence the name, "Netflix" from the start, and nothing locking him down to DVDs, which he felt would someday be obsolete leaving his company with an anachronistic name). At that time, though, so many people only had dial-up that it just wasn't feasible.

It's interesting and somewhat amusing to me that the interim "send DVDs by mail" business got to be so huge and successful, but I see Hastings as finally trying his hand at his initial dream.

More power to him, I say, as a decade or two down the line, it will be streaming all the way, no doubt.

I posted this on their blog before I saw the thread here:

Remember the quote by Henry Ford? It went more or less like: "If I asked customers what they wanted, they'd have told me a faster horse." The truth is, all the customers here -- myself included -- are probably the least qualified people to say this is a bad idea.

I do think that some communication between the 2 sites is important. But it's not as if that's off the table. Once they get around to developing it, it won't be hard to have an "Available On Netflix" link beside entries on your Qwikster queue. In fact, doing so would be effective cross-promotion.

The truth to me seems to be this: These really are very different businesses. And it's true streaming is the future. I expect Blu Ray to be the last optical disc player people ever buy. From there on, it's all streaming.

A future we could've faced is one where Netflix devotes more and more resources to streaming license fees and data centers, they close regional netflix warehouses, dvd delivery goes back to 2+ days instead of the 1 day it currently is for most the US population. In general, the DVD service is choked of leadership talent within the company and capital improvements.

Now, there's a CEO of DVD's by mail. A man who has full budgetary powers over just the DVD business. A business NFLX KNOWS how to run profitably and repeatably. It's a franchise. They've got that stuff DOWN.

I'm not an apologist. I currently opted to pay for both services and I'm not happy about the price increase. But, I'll wait and see. In 6-12 months, if we don't see some big improvements in stream selection, I'll probably chose to cancel that side of my account, and use Hulu Plus and Amazon instead. But for now, I respect the hard decisions businesses make when they see the need to pivot.

This decision was not made over night, and this change has been coming for quite a while. In fact, if you go look at this post on Netflix's API blog dated 27 June 2011[1], you'll see:

As of Oct. 14th, 2011, the Netflix API will be focused exclusively on offering content and functionality from the streaming catalog. As a result, we will be discontinuing the support of DVD-related features in the Open API.

They go on to say that this is to support long term goals around internationalization, but that does not, by any means, preclude this split.

[1] http://developer.netflix.com/blog/read/Upcoming_Changes_to_t...

Qwikster.com was registered in May 2010. This was not an overnight decision and I doubt even the contrition in the blog post wasn't well planned.

I strongly suspect it's related to negotiating royalties for streaming based on streaming subscriber numbers, not the combined numbers.

That was the reason behind the original split in the services, so it's probably why they're actually splitting the accounts.

> That was the reason behind the original split in the services

No. Not at all.

The plans were split in preparation for the company split. This has been in planning for a long time.

And the company split isn't "related to negotiating royalties for streaming based on streaming subscriber numbers, not the combined numbers" as waterlesscloud indicated? The public explanation of better focus for each business is sensible, but I think there is a not insignificant impact to licensing that drove the decision as well.

I know the Netflix name was chosen from the beginning to be compatible with a future streaming business, but seeing this chrysalis-style business plan unfold now is quite astounding in its long-term thinking.

People always go up in arms about change of price like this. For a long time, the prices at Netflix mostly stayed the same because they started with DVDs, and later added streaming. The streaming catalog wasn't built out enough for them to monetize it with confidence. So what did they do? They gave us a break and let us have free streaming. Now that it's a significant catalog, they want us to pay for the service... which they have to license! And it aint cheap for them to do that.

Now that it's doubled, people feel it's outrageous! But it's not because of the value they're receiving, it's because they're conditioned to expect one price and it's now higher. They lost a million subscribers, but Netflix will get those back after people realize they were being idiots.

Let me ask you a question, would you rather pay $15 a month for unlimited streaming and DVDs, or $50 to Comcast for basic cable? In my book, $15 is a pretty damn reasonable price.

It's not the change of price that has everyone upset tonight. That already happened.

What has people upset tonight is what customers will lose in this change: the convenience of a single website to find interesting movies and TV shows and arrange to view them by whichever delivery means is available.

I still have to pay $50 to comcast so I can connect to the internet and stream my netflix.

It would be if you could get everything they have on dvd streamed as well.

Until that happens, neither of your two offerings are worth considering.

Those who are more deviously than me would say that rapidshare.com is the best alternative right now.

They actually have been steadily raising prices. It's been really bad for those getting BRDs -- they've had 3 or 4 price increases. I think this is just the proverbial straw that broke the camel's back. We're getting no extra value for the increased price.

I read this and my brain immediately thought it had to be an April Fools joke. It took a second or two to remember it is September.

Regardless, my hat is off to them for betting the company's name on their streaming business. I know that's the only part of their service I use anymore -- I've had the same DVD checked out for over a year because I couldn't be bothered to deal with the perceived hassle of managing my queue and planning what I want to watch in advance.

me as well. i thought: this can't possibly be real its so user hostile.

Same here - I actually caught myself looking up at the date on the taskbar before realizing the same thing. I think the ridiculousness of the 'Qwikster' brand name was what made me doubt it at first.

I researched Netflix for a project back when they had around 8 million subscribers and the biggest part of their business was direct mail DVD.

The strides they've come to have the Netflix brand as more than just a DVD rental service are immense. My only worry about this move is that they lose all of that brand recognition with "Qwikster."

I kept my account even after planning on dropping it when the price increase happened, but now I don't really see any reason to keep my streaming account. At least when they were integrated, searching in one place, and having all my reviews in one place provided some additional benefit for me.

Now I don't really see any benefit at all for keeping the streaming portion over Amazon Prime (which I have) and maybe adding Hulu Plus. I'll have to see if having the game option makes it useful for me to keep the DVD portion of my account.

As soon as the sites split, NetFlix looses a great deal of value to me as a customer. Before it was a single place where I could pick movies to see - whether streaming or on DVD, now it becomes a repository of a bunch of okay television shows and (esp. once they lose Starz Play), a mediocre movie selection.

What an absolutely awful name "Qwikster". I'm still frowning in disgust.

Totally agree, I know first-hand how hard it is to come up with a good name coupled to an available domain name, but I would expect better from Netflix.

It makes me immediately think of "Quitster", not the best given the circumstances.

DVDflix!

I think 2003 called & they want Netflix to return their buzzword. Reminds me of two other failed businesses "Napster" & "Friendster"...

Honestly, I have to believe that it is some sort of homage to The Simpsons' Qwik-e-Mart. Otherwise, it is probably the worst name I have heard in a very long time, probably since Motorola's consonant craze started by RAZR (ROKR, PEBL, etc)

The real question to ask is: Is this good for customers? It doesn't matter if the goals of the two businesses are different. What matters is how it affects customers. Do customers consider the services as separate entities or as two parts of the same whole? I think they'll lose a few customers who like both services, but feel awkward about dealing with two companies now instead of one (like me).

For the record, since Netflix Canada launched sometime last year, it has been a streaming-only service. We have a kind of sucky selection that is getting better as time passes, but I can understand why they went streaming-only. From this perspective, it's pretty odd seeing people disapproving of the choice or showing attachment to the DVD service.

Totally agree. There is so much to hate about the DVD watching experience - the menus, unskippable ads/trailers, poor image quality, getting stuck on a scratch - I can't wait for them to disappear.

But, i'm guessing the DVD fans are actually arguing for the larger catalog, not for plastic discs.

For me, it most definitely is the large catalog size, easily 10x the streaming size.

In theory, however, Qwikster doesn't have to limit itself to DVD's in the future. If it's real focus is shipping speed for items that are rented (or more likely purchased), it could expand into other product lines. Speed of shipping is a process in and of itself, something that very few companies, like Amazon, have gotten down.

"Qwikster will also now offer video game rentals through the mail"

While I wouldn't sign up full time for a game rental service I would be interested in getting a game now and then rather than a dvd. Suffice it to say for my needs a dvd in the mail fit my needs exactly and I will continue paying for that.

Edit: not to mention from what I hear games always have a long waiting list on other services. I am more than happy to put a game at the top of my list and getting it at some point in the next two months, but meanwhile getting dvd's that I want.

I'm hoping it comes with the requisite netflix...err qwikster... efficiency that I've come to expect. We tried Blockbuster for this, and it was a nightmare. Getting a game from them was an exercise in patience. We were with them for two months and didn't receive a single one:)

I believe speed was one of the things Netflix wanted to communicate with the otherwise unfortunate name "Qwikster".

Every time I've looked at my Netflix queue and seen how few of the items in it are available via streaming, I've question whether to drop Netflix streaming now that it's a separate plan. Now that it's a separate non-integrated service, it's an easier decision for me. I wonder is this is part of the plan though? If you can't add non-streaming content to the streaming queue in the first place you're not constantly being reminded of what's missing or how little is available to stream.

Every conversation of late about Netflix streaming seems to focus on the lack or pending lack of content when the Starz deal expires. A streaming service that didn't make lack of streaming content front and center to the user experience would seem to have a better chance of succeeding, especially for new users that quickly try and build up a queue only to find that particular item they now browsing isn't available to stream. Once you separate out the everything's availability of a huge DVD catalog, perhaps user won't miss what's not there quite as much.

I also wonder if those users that care about DVDs primarily care about having access to more than just recent movies and content that will never stream via Netflix (HBO shows?) and that perhaps the future of streaming is more about more recent movies and TV shows. However, if Netflix streaming doesn't progress to the point where it has a catalog breadth like the current DVD catalog, I worry what that means for those who enjoy having access to all of that long-tail content, especially now that local DVD stores with large catalogs are pretty much non-existent.

That Netflix needs to keep making these changes is simply a symptom of a brutal endemic problem:

    In general, subscription business suck.

Most subscription businesses suck because they are dependent on CAC (customer acquisition costs; the cost required to land a new sub) and churn (the percentage of subs that leave the service).

For example, a typical gross CAC for a business like netflix is $200. At $10/mo the subscriber has to stay a sub for almost 2 years before any profit is made. Meanwhile the company had to spend the $200 up front, burning through capital. Also, meanwhile, 15-20% of the customers leave every month. Those customers will never pay off the costs the company spent to aquire them. It's an never-ending spiral of death. As seen by Vonage, Netflix, etc...

But Netflix has another endemic problem: They are the bitch of the content providers. Netflix owns NOTHING (especially in their streaming only biz). All it takes is one content provider to balk (Starz) and the only way they'll get new subs is to spend more on marketing which raises CAC. Which accelerates death.

Name a few successful subscription businesses. Successful (in my mind) means PROFITABLE. Revenue does not mean sh. Come-on, name 'em. (Those that you do name will have some sort of monopoly or exclusive right to a physical asset).

This is why, as an investor, I will never invest in companies that think they can be successful with a subscription business model.

This is also why Apple is kicking ass. Apple gets paid up front. The only way to go.

Interesting, I would have argued the opposite: well thought-out subscription businesses are goldmines. Once you have a customer, you aren't billing them a single time -- often, you're billing them repeatedly for the option to use your service, whether or not they actually use your service. A customer has to take an additional action to stop paying you.

Are you arguing that non-subscription businesses don't have customer acquisition costs? Or just that CAC for subscriptions are higher?

"Name a few successful subscription businesses. Successful (in my mind) means PROFITABLE. Revenue does not mean sh. Come-on, name 'em. (Those that you do name will have some sort of monopoly or exclusive right to a physical asset)."

What about most SAAS businesses? Or most magazines? Hosting providers? World of Warcraft?

But I totally agree with you about the content providers like Starz calling the shots and ultimately deciding whether Netflix lives or dies.

Oh dear...where to start: * 37Signals * Salesforce * <insert name of food product> of the month club (you said profitable - not Fortune 500) * <insert name of major gym> membership * Does Amazon Prime count? * Costco - you need to pay to be a member, whic his, by definition, a subscription business * Successful hosting providers - I myself use the great Bluehost.com

Though you could argue that paying for and building a gym gives you exclusive right to a physical asset.

Out of hand rejection of subscription businesses is your prerogative, but there are businesses which charge monthly rates that have surperior proritary products or services, or which use the membership as a means to incent more purchases, that can be very successful.

I have no way of knowing whether 37signals is actually profitable or not, but perhaps Salesforce is a real example. You found ONE.

Your gym membership does not count: Physical asset.

Amazon Prime is not a business. And I guarantee you it is NOT profitable anyway. It's a marketing program.

Hosting does not count: It's a physical asset.

Costco is not a subscription biz. It's a retailer that uses membership as a marketing ploy to drive loyalty.

You said, subscription based businesses. I am not sure what physical assets have to do with anything. Even ignoring Netflix's physical DVD library, if you consider hosting a physical asset, then I think you'll also have to qualify Netflix as a "subscription service which provides automated hosting & licensing of select content for subscriber's convenience".

>Hosting does not count: It's a physical asset.

If, instead of 'subscription business' you mean "businesses that rent access to software without much by way of per-user physical infrastructure" then yeah, I think some people would agree with you. I would. businesses think that because they have a low marginal cost per user, they think they can rest on those high margins. This might be what you are talking about, and if so, I agree. I mean, if you have a business with margins that are very high, investors notice, and they start trying to horn in on your market; either investors are willing to throw gobs of cash at re-writing all your software then saturating the market with marketing, or maybe someone open-sources something that can do a lot of what you can do, and suddenly you have a bunch of small competitors using the open-source software willing to compete with you at a more reasonable margin.

I was thrown off by your use of apple's hardware business as an example; I mean, selling intellectual property divorced from infrastructure is a hard problem, really, it's a different problem from the subscription vs. one time payment business models.

In Q2, Netflix SAC was $15.09 and churn was 4.2%. [1]

Netflix has been profitable for several years.

[1] http://files.shareholder.com/downloads/NFLX/1290701144x0x485...

"Name a few successful subscription businesses. Successful (in my mind) means PROFITABLE. Revenue does not mean sh. Come-on, name 'em."

USA Today, the Wall St. Journal, People Magazine, porn websites, zipcar, Red Hat, salesforce.com, github, dropbox, evernote.

That is an interesting perspective, but it runs directly counter to my experience. I've experimented with many different business models; building hardware and selling it (and then renting co-location) charging a setup fee that covered the parts costs (and then charging a just above cost fee for running the server) and traditional renting.

Renting hardware, for me, has been vastly more profitable than any other option.

I can build a 32GiB ram server with an 8 core opteron, 4 'enterprise sata' disks, etc... for well under fifteen hundred bucks. I could probably sell it for two grand, if I spent a lot of effort on sales.

Alternately, I can rent the thing for $300/month. Heck I can rent a three year old server with similar specs for $300/month. This is without really trying; I thought I was going to have to part out those old servers, but people keep emailing me asking for high-ram dedicated servers. I'm honest about the age of the hardware, and yet I still have more demand for old servers than I have old servers. (I'm working on moving my xen customers on to new servers, so I will have more old servers shortly.) Those old servers cost maybe $60/month for me to host; the new ones? $30/month.

As far as I can tell, you can charge vastly higher prices if you rent your product rather than sell it.

From my perspective, renting is more profitable than selling even if I'm paying credit card rates on the capital.

I self-finance by offering people a discount if they pay 3, 6, or 12 months ahead; 5% for 3 months, 10% for 6 and 20% for 12 months. It works quite well, new signups on a server will pay for the hardware the first month. 20% is kind of costly capital, but it still makes more sense for me to borrow and rent than to sell.

Gasp, this is turning into a joke!

I had Netflix for a few months, I used it to watch the entire Battlestar Galactica. After that, I went through and searched for 30 different movies to watch, and they weren't available, and I'm not talking about new movies. None of the Indiana Jones', Star Wars', Rockies, Bladerunner, etc. Now with the Starz debacle, and with content providers getting ready to pound them with price increases, Netflix is in real trouble.

Yes, streaming is the way to do it. I love streaming. But I don't think it will be through Netflix. This sounds like a company in its death throws.

I simply don't understand why they would split themselves up into 2 companies. The only reason why I can think of why they would cut themselves into 2 companies, is so that the content providers can't use the DVD business' cash flow to pay for the content. So content providers can't charge an arm and a leg because the cash flow of the streaming side would be much smaller.

However, the miscalculation here is that content providers can simply make their own content available themselves through streaming. Which is already happening in other continents, and even in the US through Google, Facebook etc. I think Netflix has severely miscalculated itself, and this may be the end.

The only reason why I can think of why they would cut themselves into 2 companies, is so that the content providers can't use the DVD business' cash flow to pay for the content.

My thoughts exactly, I assumed the original separation was done so hollywood couldn't bargain over dvd profits, perhaps this move was done to make that wall even stronger. I fear for the future of netflix, it's an easy choice to have a subscription now, but what happens when the major studios get involved and start demanding serious money for their content.

The greatest opportunity for netflix is to become the global leader in streaming films. They've been slow to expand in this regard. I've been waiting for netflix to hit the UK for a long time. By dropping DVDs they avoid any expectation of a service that requires significant investment in infrastructure. This presumably also makes negotiations far simpler and faster. With a race to penetration in each new market this could be critical.

I wonder what Netflix will show for search results that are only available on Qwikster.

Probably nothing; they've been removing that kind of functionality (e.g. add to DVD queue from the streaming UI) for a while.

I remember that when a movie became available for streaming if it was in your DVD queue, you would get notified in the UI. I don't know if that is true anymore?

Hastings replied to that question in the Netflix blog post's comments: [1]

Question: "If a film I search for on Netflix is not available for streaming, will the website still tell me if the DVD is available? Or must I search twice?"

Reply: "ouch. You'd have to search the second place if we didn't have it in the first place."

[1] http://blog.netflix.com/2011/09/explanation-and-some-reflect...

That's pretty bad. You'd think they could integrate an API system that at least allowed for the two services to interact with each other.

Seems pretty obvious that the plan here is to sell the DVD business (perhaps to PE), raise capital, and use it to do a combination of original content creation and for leveraged with the main studios to get the same premium titles into the streaming service that would already be available on the DVD service.

However if I'm right the CEO Reed isn't being any more forthcoming or communicative about his true plans then he was before.

has everyone forgotten how limited the streaming service is? They should have waited until they at least have a selection. I'm going DVD service, and Amazon for streaming.

It may be limited if you only watch movies, but If you like, say...British detective shows, there's enough episodes to keep you busy for a while.

Or Dr. Who, or all seven seasons of Star Trek Voyager.

Until you want to watch the latest season of Doctor Who, which is currently available on DVD, but not on streaming.

And that is my main problem right there. Netflix streaming is good for finding old niche content but for general mainstream content, not so much. And now with Starz leaving....

The blog posting by the CEO was good but he still didn't answer questions about the content problem with streaming. He gave it a one liner at the end as if it was an afterthought.

I am going to keep Netflix for now but I am on the edge. I know one thing, I'm far from an enthusiastic customer.

This move is simply idiotic. It doesn't matter what netflix wants, it matters what the customers want. Now I have to go somewhere else to manage DVD's by mail? With a horrible name like kwikster?! Are you serious? Why do I need netflix again? They don't have the budget to get the best movies and now they are making my life harder. They are like the opposite of Apple. I didn't mind the price increase from a couple moths back at all, I know it costs money to have a good selection. But now they have basically said "Oh hey we made a really stupid decision before so we're gonna make things better by making a worse decision."

I now hate netflix, I can cancel everything and move to amazon's streaming service. I think it's hilarious that an employee of netflix on HN said that netflix excels by being very focused. That makes no sense. You can't just treat your customers like crap and expect them to love you. I shorted their stock before the 20% and I can't wait to watch it go down further.

Question for anybody more familiar with the content licensing business:

How does Netflix becoming stream-only affect their negotiating position with the content license holders?

One comment points out that both Netflix and content holders can't lean on the DVD mailing business to supplement licensing costs. Is it really the case that content providers could hold Netflix to higher licensing costs or more catalog restrictions if they (both sides) know Netflix has the DVD mailing business to supplement the streaming business?

I wonder if there are other reasons behind this split more directly tied to licensing. Would content providers be more willing to open up their content catalogs with a stream-only business?

Clearly this will be disheartening to the true user such as myself. By splitting functionality as to prevent easy access to either material nor allowing usage of existing ratings they're continuing the trend toward customer alienation.

I say this almost all the time, but even if Netfix renegotiates for retaining Starz it is still not yet an adequate amount of viewing content for me to wholely dismiss DVD by mail, regardless of where I even stand on the matter in terms of philosophy.

In the end I still gain a larger bill, continued limited streaming content, and a split in usability.

And what of netflix when Hollywood continues to charge into extinction taking Netflix with them?

As a once happy customer turned unhappy customer for a variety of reasons, I believe this signals the beginning of the end for Netflix.

By the way, thanks for destroying Blockbuster on the way down. I had more options 2 years ago than I do now.

It's interesting that they save the big price hike until after they bankrupted Blockbuster. Well played, in an evil-genius sort of way.

Something just doesn't seem right here. Netflix could have easily worked on both DVD and streaming and each team could have focused on strengthening their services without causing any inconvenience (2 separate websites and queues?) to the customers. Had this been an Merger between two companies who were in DVD and streaming business, markets would've hailed the decision (just because of the synergy).

I am sure Hastings is not naive enough to not think about these obvious things, which makes me think, how does this help them? I can't think of even one angle where splitting the companies makes sense?

I really wish they would address the lack of many movies and TV shows for streaming. I'd love to just subscribe to Netflix instead of Qwikster, but the streaming catalogue is just not there right now.

As a user of their service, I found it very frustrating when they removed the ability to add movies to your dvd queue that were not available via their streaming service from within the streaming service interface on the ps3, xbox 360, etc. A further separation will probably just force me to drop the disc by mail service altogether, since I really, really, don't want to put up with the hassle of logging into an entirely different site to manage my queue.

To reduce risk, I think they could have pushed the Quickster brand within the Netflix UI harder before putting all this on its own domain.

Side note: TechCrunch got back to doing real news. Good for them!

what a terrible idea. the best part of Netflix is that it was integrated between DVD and streaming queues. dfm. how much does Amazon cost with Prime?

Prime is $79/year.

I too think its a terrible idea but, What a stupid question. (how much does Amazon cost with Prime?) I hope you realize that if you cannot figure out an answer to that questions in like 10 seconds yourself, you probably shouldn't be commenting things like companies pivoting.

(And an equally stupid answer. Prime is $79/year if you are not a (mom or a dad or a student))

This reminds me of Apple killing the floppy.

Anyway, this is all about negotiations to get more content in the streaming service. If newer movies and more tv shows appear in the streaming service, no one will care about DVDs by mail.

Really? This reminds me of Tivo, who thought they had a great way to monetize the middle between content and the cable companies.

Netflix is on it's way out, just like Tivo. They have ZERO leverage and are doing everything they can to turn away customers (price hike, worse service, god-awful PR...).

For those who think Netflix has been smoking a bong with this move: https://mobile.twitter.com/Qwikster

To me, dvd+streaming is worth more combined than separate. I guess Netflix will find that out. Without the DVDs, Netflix is just another streaming company with little to differentiate it. There will no longer be any barriers for me to switch to another streaming service, like Amazon.

80% of what I want to see is DVD only. It is far, far too soon to dump that - I'd dump the streaming first.

I never signed up for Netflix until they offered the streaming service, and then never used the physical DVD delivery option - and changed to streaming-only as soon as they made it available. Some of us don't want physical discs. Having such a wide variety of content - even if it's not as varied as the physical media selection - for less than $10 a month is awesome.

Sidenote: http://instantwatcher.com is a great companion site to Netflix streaming.

Whatever happens this will make a B-school case study very soon. The case where a company decided to be pro-active in picking a market vertical based on incomplete data. Weather case will have a positive spin or a negative one, only time will tell. As a streaming customer I hope they will work on enriching their library.

I think that everyone is missing the really big thing here, the US Post Office is screwed...

Why is Netflix performing seppuku?

tldr;

I read through probably half of the comments and then skimmed the rest, so sorry if this was already mentioned:

What if Netflix streaming service improves A LOT, and their movie collection grows to encompass pretty much every movie out there? A lot of the discussion has assumed that Netflix would remain the same, but with their focusing exclusively on streaming, I could see how they would have more leverage to negotiate with content owners to license movies--for one, they could charge a higher subscription fee and offer more revenue share for streaming and a more comprehensive catalog, something that I'd be very happy to pay an extra $5 for (I currently only have the streaming plan)

Does anyone else see ISPs putting caps on bandwidth restrictions in the future and thus hampering Netflix (and other streaming companies) effors? I thought some residential internet plans already have caps in place.

I'm buying NFLX shares at $147. Down from $300, I think people are overdoing how much impact the recent issues will have on the company value and future prospects.

Early morning my phone buzzed that i got this email from: Reed Hastings, Co-Founder.

only reading the title, i thought poor prince of Nigeria...

Looks like Netflix is killing its DVD branch and focuses on streaming branch.

It's hard to say yet how it would work out.

I wonder what they'll do with customers who are already signed up for both...

Video:

http://mashable.com/2011/09/19/netflix-reed-hastings-video/?...

Make your bet. Two years from now, is Netflix still going to be doing DVDs in some form--whether via Qwikster or otherwise?

I say yes.

A poorly thought out point: a defensive move against the whole company folding due to some reason?

This seems like an act of desperation.

Netflix steaming is the new Blockbuster. I disliked Blockbuster because their stores had many copies of currently popular movies and not much else. I liked Netflix because it had an enormous catalog that let me work on seeing all of the great films that had been made in the last 100 years that I'd missed. Netflix streaming is like Blockbuster. At any given time it lets me access only a fraction of its catalog and that fraction is biased toward what is popular. Netflix steaming is the new Blockbuster. :-(

I'd love it if Netflix streamed popular movies.

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