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Kuros
Joined: 27 Apr 2004
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 Posted: Mon Sep 19, 2011 8:42 am Post subject: Netflix to Qwikster (and back) |
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Netflix has shunted off its DVD by mail service and rebranded it Qwikster. Apparently they fear too much the rise of Redbox. Anyway, its a bad sign for a company when the CEO has to apologize for a new decision.
(http://blog.netflix.com/2011/09/explanation-and-some-reflections.html)
| Netflix CEO Hastings wrote: |
When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, �Actions speak louder than words,� and we should just keep improving our service. |
CEOs often blame poor communication when customers don't understand their decisions. Its a nice way of saying the customers just don't get it.
Certainly, Netflix was in a real bind. They were exceeding the volume limits on their streaming contracts (based on marginal pricing principles) and beginning to lose money. They had to raise prices somehow. But did they have to do it like this?
| McArdle wrote: |
Someone has to cover things like development costs. The average household was probably paying somewhere between $100-$150 a month for internet + media content, with about $50-60 of that going to the pipes, and the rest to cable and movie rental. The idea seems to have been that the cable providers would meekly sit by as Netflix stripped off the most lucrative part of their business, leaving them as owners of a low-margin, tightly regulated utility provider of broadband services. Meanwhile, the content providers would smilingly allow Netflix to charge something like $10-15 a month for watching their shows on demand. Netflix wouldn't have the margin of a cable provider, but it would make it up in volume--at that pricing level, it would eventually dominate a large segment of the market.
The cable networks certainly weren't having it--they've already launched what I think is an ultimately doomed, but nonetheless expensive and time-consuming, regulatory war against Netflix. More importantly, the content providers had absolutely no intention of allowing Netflix to kill off their DVD and syndication businesses with a cut-rate service that couldn't possibly yield anything close to their current revenue streams. They're demanding more money--and in the case of Starz, higher pricing on the Netflix side.
In defense of the providers, I'm not sure they have much choice. Unlimited instant streaming of movies and television at the prices Netflix was charging will not support the content generation machine that currently fills your cable channels.
But regardless of whether you think the content providers are wrong, the fact is, they own the content, and Netflix can't stream it unless they pay for it. That meant that prices were going to go up, or quality (measured by availability of content) was going to go down--and in fact, both of those things happened. Unfortunately, users had been conditioned to expect unlimited free ice cream; they didn't like having to pay for it. Subscriptions dropped instead of rising, as analysts had been conditioned to expect. And analysts didn't like that. Netflix stock went into the sort of rapid decline that usually only plagues the heartbroken heroines of Victorian novels.
So I understand that Netflix was in a bad place. But I don't understand how Qwikster solves any of these problems. It doesn't improve their bargaining position with the content providers (though contra Tim Lee, I don't think it makes it any worse, either.) It doesn't soothe angry customers who don't like having to pay for stuff they used to get for free--indeed, if some critics are right, and the websites don't inter-operate, it just makes those customers madder. |
Last edited by Kuros on Mon Oct 10, 2011 2:17 pm; edited 1 time in total |
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bucheon bum
Joined: 16 Jan 2003
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| Posted: Mon Sep 19, 2011 11:37 am Post subject: |
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I was happy I received that e-mail today since it reminded me to close my account ASAP.
No doubt business schools will be using Netflix as a case study of what not to do. |
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Kuros
Joined: 27 Apr 2004
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