
Netflix Splits DVD And Streaming Businesses - ssclafani
http://techcrunch.com/2011/09/18/netflix-qwikster/
======
Jun8
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.

~~~
frossie
_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.

~~~
perucoder
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.

~~~
cookiecaper
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.

------
crgt
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.

~~~
pkulak
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.

~~~
narcissus
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".

------
bryanh
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.

~~~
timr
_"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.

~~~
rufo
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.

~~~
po
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.

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

Yes, Quixtar is Amway.

------
TomOfTTB
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.

~~~
earbitscom
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.

------
morrow
"...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.

~~~
evandena
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.

~~~
pyre
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.

------
sandieman
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).

------
foobarbazoo
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.

~~~
arithmetic
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...](http://blog.netflix.com/2011/09/explanation-and-some-
reflections.html)). DVD service may not last very long, but right now, it is a
growing business.

~~~
techdmn
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.

~~~
ScottBurson
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.

------
Lukeas14
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.

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

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

------
losvedir
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.

------
encoderer
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.

------
aaronbrethorst
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...](http://developer.netflix.com/blog/read/Upcoming_Changes_to_the_Open_API_Program)

~~~
ethank
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.

~~~
waterlesscloud
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.

~~~
elq
> 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.

~~~
biot
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.

------
superkinz
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.

~~~
Stratoscope
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.

------
hesdeadjim
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.

~~~
morrow
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.

------
krashidov
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."

------
bethling
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.

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

~~~
MartinCron
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.

------
meemo
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).

------
nihilocrat
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.

~~~
xinsight
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.

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

------
dr_
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.

------
icefox
"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.

~~~
enjo
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:)

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

------
davidjade
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.

------
cek
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.

~~~
BrandonWatson
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.

<full disclosure - I love CEK :)>

~~~
cek
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.

~~~
Klinky
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".

------
steve8918
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.

~~~
seanalltogether
_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.

------
ollysb
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.

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

~~~
loganlinn
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...](http://blog.netflix.com/2011/09/explanation-and-some-
reflections.html)

~~~
Klinky
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.

------
dotBen
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.

------
beagledude
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.

~~~
learc83
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.

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

~~~
jamesgeck0
Until you want to watch the latest season of Doctor Who, which is currently
available on DVD, but not on streaming.

------
fatdogs12
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.

------
lliles
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?

------
jjm
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?

------
nhangen
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.

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

------
pcj
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?

------
cmelbye
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.

------
9999
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.

------
badclient
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.

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

------
outside1234
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?

~~~
akat
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))

------
scdc
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.

~~~
erichocean
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...).

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

------
WalterBright
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.

------
mrbill
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_.

------
antidaily
Sidenote: <http://instantwatcher.com> is a great companion site to Netflix
streaming.

------
urbanturbanguy
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.

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

------
dustyreagan
Why is Netflix performing seppuku?

------
jontsai
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)

------
aninteger
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.

------
fastspring
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.

------
brigadier
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...

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

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

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

------
zachcb
Video:

[http://mashable.com/2011/09/19/netflix-reed-hastings-
video/?...](http://mashable.com/2011/09/19/netflix-reed-hastings-
video/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+Mashable+%28Mashable%29)

------
badclient
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.

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

------
ByteMuse
This seems like an act of desperation.

------
finin
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. :-(

~~~
pkulak
I'd love it if Netflix streamed popular movies.

