

Reed Hastings responds to criticisms and announces Qwikster - male_salmon
http://blog.netflix.com/2011/09/explanation-and-some-reflections.html

======
DevX101
Netflix should be able to walk and chew gum at the same time. There are a lot
of successful companies that are much more diversified than Netflix is right
now. This honestly strikes me as a panic driven move in response to the
customer rage and their precipitous drop off in stock prices.

I'm trying hard but can't see the upside to this move. And I think this will
cause a big hemmorhaging in profit for the short/medium term. Netflix has 12
million members that are on both the DVD and the streaming plan. These are the
folks that got the 60% price hike. Although Netflix lost some customers (~5%)
after the pricing change, that massive price hike put them in a position to
increase profits, even with less members..

But now that Netflix is splitting itself in two, I can guarantee you a
sizeable chunk of people who were just happy with the dual plan will end up
picking one or the other.

That being said, I like that they're tackling video games. They ought to take
a serious look at getting into competition with Steam, which is making
$1Billion in revenue and growing, with high profit margins.

~~~
0x12
> I can guarantee you a sizeable chunk of people who were just happy with the
> dual plan will end up picking one or the other.

But the upside for netflix is those people that end up picking both.

The time to analyze this is 6 months from now when the figures are in.

My personal best guess about what they're about to do is sell off the DVD
division.

~~~
jonknee
> But the upside for netflix is those people that end up picking both.

How's that an upside considering that's what they currently have? Instead of
one charge on your credit card there will be two that add up to the same
thing. At best (for Netflix). This will not raise revenues.

~~~
phamilton
Picking both results in a 40% price hike. I think the OP was referring to the
whole situation, not just the name change.

------
flyosity
This is not something you see CEOs write every day. Hell, this isn't something
you see CEOs write ever in their careers. It took a lot of guts to write it,
and regardless of the huge controversy surrounding their pricing strategies, I
hope that this split succeeds.

Also, video games!

~~~
nl
He's even replying to comments in the Facebook comments threads below. That
impresses me a lot.

~~~
Stratoscope
From what I saw, he's only replying to comments praising the decision, and not
engaging at all with any of the vast majority who criticize or question it.

This does not impress me quite so much.

~~~
nl
The first two comments he replied to (when I saw) were very critical.

~~~
Stratoscope
Thanks for the correction. I had a different impression when I first read some
of the comments, but now I see I was mistaken.

I still have the impression that Reed isn't "getting" the two biggest
complaints:

1) Customers who use both services are unhappy about losing the integration
between them.

2) Quikster is a monumentally bad name

(Yes I know it's misspelled. I would look up the correct spelling, but that's
exactly the point. How _do_ you spell it without looking it up? And how
exactly did they come up with the name with nobody on the team saying, "Hey,
my Amway friends tell me it's not Amway any more, it's Quixtar." :-)

------
pyrmont
While they seem to be going to great pains to be genuine and upfront about
what they're doing, why does Netflix need to create a separate company in
order to innovate? Apple doesn't have a separate Mac and iPhone business and
they seem to innovate just fine.

What really seems to be going on is that Netflix is getting ready to spin off
its DVD business. That this seems so obvious makes the repeated apologies feel
like an insult to our intelligence.

~~~
male_salmon
As Reed says, the streaming business is global, but the DVD business is US-
only. Maintaining code that services functions that apply in some locales but
not others will slow down Netflix's ability to innovate.

~~~
pyrmont
Again, Apple runs businesses (eg. Macs) that operate in some jurisdictions
that their other businesses (eg. iTunes) do not. You don't need a structural
separation to 'innovate', you need a structural separation to ease a sale of a
business.

~~~
elq
I honestly don't care how Apple runs it's business. I don't work for apple, I
do, on the other hand, work for netflix, and not having to worry about DVDs
will be a nice relief.

~~~
foobarbazoo
^^ This is why Netflix is fubar'd. Totally internally looking -- not giving a
shit what it means for their customers.

Yeah, we all _love_ paying two bills each month, having to search for content
two places, having our ratings queues forked and kept out of sync. Thanks,
we're all _so glad to hear_ that it's easier for you.

We'll make it even easier: find new customers. We're gone.

~~~
18pfsmt
You pay $200/ month? Maybe you meant $20?

I would be interested in what you find as a good replacement because I might
consider a switch if it were good enough. I just killed my cable and that was
costing me ~$70/ month.

------
deyan
May be this is the wrong decision, may be it is the right decision - it is
quite unclear and only time will tell. However, from an entrepreneurial
perspective, Reed has all my respect - it is incredibly difficult to disrupt
yourself and he has certainly placed his bet. That takes balls and I respect
that.

As to why separate, I assume that from an operational perspective it makes
running the businesses easier. It is strange that some things e.g. ratings,
accounts, etc. will be separate though, that's for sure.

I can't wait to see this play out!

------
lazerwalker
To me, the classiest thing about this post is how Hastings is taking the time
to personally respond to the blog comments. You don't see that very often from
a CEO of a company as large as Netflix, and it's pretty darn cool.

~~~
wmf
It wasn't that long ago that it was "illegal" for CEOs to blog.

------
Vexenon
I really, really liked the way Hastings wrote this post. It takes a lot to own
up to your mistakes, but he seems dedicated to making Netflix succeed, and the
decision to split the service into two is really... interesting, to say the
least. I'll probably stick with streaming and forget about physical media, to
be honest. It's much more convenient to drive to the Redbox down the street
than wait a few days and have to deal with mailing discs back and forth.

Kind of glad to see video game rentals coming; too bad they're late to the
party and will have to compete with Blockbuster, Gamefly, and Redbox.

~~~
Lewisham
_Kind of glad to see video game rentals coming; too bad they're late to the
party and will have to compete with Blockbuster, Gamefly, and Redbox._

All of these services have trouble. Blockbuster has a tarnished name (and I
personally have never used the service), Gamefly has poor turnaround time and
stock, and Redbox has awful stock and a high price.

Netflix/Quikster have been in a prime position to totally disrupt this for
years. That they haven't pounced on it sooner has always been odd to me. It's
like they consciously decided not to make money.

------
tsycho
To anyone who reads this from the Netflix team:

I love Netflix. And so my following criticism is intended to be constructive.
The email and blog post that Reed sent out today starts off well...

"I messed up. I owe everyone an explanation........I’ll try to explain how
this happened."

However, after writing the above, Reed doesn't really give an explanation, and
based on my colleagues' and other commenters' reactions so far, it seems to
have come off as a smug non-apology. Rather than a wordy but empty-ish post,
what you should have written about the overall price increases was a simple
explanation at how your sourcing costs have increased. You might think that
since that information is public, and geeks like us already know about it, but
the majority of your customers might not be as news-savvy. And on the DVD
side, explain to your customers some of the challenges that you are facing
there, how they have become different from the streaming side, and why you
needed to separate the businesses. (I personally don't really understand this
one - the only reason I can think of for the clean separation is if you wanted
the option to sell off one of the businesses later).

I believe people would have been more sympathetic had you given a simple,
honest explanation of your challenges, especially after starting your post
like that.

~~~
18pfsmt
I noted this elsewhere, but I believe it has to do with Netlfix relationships
and negotiations with the content creators, and how it differs from the
Qwikster model of buying discs. Qwikster requires zero relationships and
negotiations with the content creators.

I can't really understand why people get so upset about these changes because
I can't find the catalog size/ low cost anywhere else. If anyone knows of a
better service/value, I would be interested.

~~~
wmf
_Qwikster requires zero relationships and negotiations with the content
creators._

This isn't quite true BTW. Remember the 28-day window.

~~~
18pfsmt
Prior to Netflix offering any streaming, there was no 28-day window. The
window came out of negotiations for streaming rights. So, not only is it true,
the streaming piece of the business impacted the DVD-by-mail business.

~~~
elq
correlation != causation.

the 28-day window was solely a way to lower the cost of buying dvd's. Those
savings went into buying more streaming licenses.

And the the grandparent - the dvd company isn't _required_ to work with the
content creators, but it would probably be dumb for them not to.

------
Hyena
I was skeptical of this move at first, but I think the argument is fairly
sound. I think a lot of commenters are focusimg on the technical aspect of the
service and I agree, Hastings is being disingenuous when he says "they're two
totally different businesses". What I think makes a sound argument is that
they require a separate marketing approach.

Streaming is only a separate business model insofar as there are fewer degrees
of freedom because of the studios; otherwise it's just a difference in how you
deliver data. But that difference could be important from a marketing
perspective. As Netflix pushes the streaming model, they risk damaging the DVD
business by association. So it may be better to rebrand DVD business and carry
it forward with a message concentrated around its (rather massive) benefits.
That move is even more important if streaming becomes more competitive im the
near future; war between cable companies, studios and streaming companies
seems pretty likely, so the streaming space may become even more dangerous
even while the conflict extends the life of DVD delivery.

So yeah, probably about as sound as a business decision can be. It may not
work out but that's not guaranteed avoidable under the old setup either.

------
ryansloan
I have to say, I think they blew it with this one. Spinning DVD-by-mail off
into a separate business might make sense, but I just don't get splitting the
ratings/suggestions up by not integrating the services. Considering that one
of Netflix's greatest strengths is the (very good) rating system this is a
questionable decision, and I think they'll catch a lot of heat for it from the
crowd that maintains accounts on both services.

~~~
ben1040
Netflix has 8 years worth of ratings I've made, so it's gotten _very_ good at
suggesting me new movies.

Amazon is the only other company that has a longer history of what I buy and
what I like, and they're making some decent inroads into streaming movies now
too. As soon as Amazon beefs up their selection and gets streaming videos
available on my Xbox 360, I'm going to find it hard to justify Netflix
altogether.

------
jfarmer
This move is uncomfortable but necessary. The two businesses are different at
every level (supply chain, cost structure, technology, user experience, etc.),
and the DVD business is on its way out over the nest 3-5 years.

Better to disrupt yourself now than wait for some upstart to do it and react.

~~~
waterlesscloud
And yet somehow Amazon manages to stream video and sell DVDs at the same time.

Heck, they sell lingerie and organic tea at the same time.

~~~
dangrossman
But if Amazon's DVD business, or selling organic tea, doesn't perform well in
the long run, they'll still be in business. If renting DVDs or streaming
movies doesn't perform for Netflix, they're out of the game.

~~~
CamperBob
That is a reason to diversify, not to Balkanize the organization even further.

------
rachelbythebay
I bet the Quixtar (Amway) folks will object to this name.

~~~
whatusername
And Australia has a "QuickFlix" that sounds pretty similar:
<http://www.quickflix.com.au/>

~~~
nullentropy
Does Netflix operate its mail DVD service outside of the US?

------
mark_l_watson
As long as they are splitting the company, why not in three pieces, with a
separate movie rating/recommendation service? That way both the separate DVD
rental business and the streaming business could make web service calls to the
recommendation service. As long as people "joined" their identities on
Quickster and Netflix streaming, then customers of both services get better
recommendations.

The "third company" might also make revenue from additional companies wanting
a high quality recommendation system. Doing recommendation well is very
difficult.

------
yequalsx
I can't see how this is a good decision. Their streaming service is cheap but
lacks titles. I use DVDs to get the shows and movies I can't get from the
streaming service.

Obviously streaming is the future but the DVD part generates profits. The
streaming only service - if it truly stands alone - is soon going to be
competing with Amazon, Google, and Apple but without as much cash as these
companies.

With their stock's price drop maybe Google or Apple will be willing to buy
them. I don't see them surviving on their own without being bought out.

~~~
nosequel
Most successful business don't make huge decisions like this if there wasn't a
reason. And instead of speculation, we know why this split is happening. Think
back with "The Social Network" was pulled from Netflix. The reason was that
Netflix and Stars in their contract was limited to a certain number of
viewers. In Stars' eyes, Netflix's total userbase was the number of viewers
even though Stars was only concerned with streaming. So, to appease both the
DVD licensing where they pay the studios per rental (and streaming shouldn't
count against that) and to appease streaming licensing where they also pay by
the size of the viewership (such as the case of Stars), they had no choice but
to not only split the subscription model, but the company itself.

Thinking that Netflix would kill a good thing is pretty dumb and I sort of
expected more from the HN audience in this case. Netflix is doing what they
have to do, not what they want to do.

~~~
yequalsx
Your last paragraph seems to suggest that companies don't make dumb decisions
by "killing a good thing". Maybe you think only Netflix doesn't make dumb
decisions of this sort but there is a long history of companies making dumb
decisions by killing 'a good thing'.

As stated I don't see how Netflix will survive long term.

~~~
nosequel
Companies in the past have definitely made dumb decisions you are right about
that, but typically they don't just kill off their main cash cow for no
apparent reason. That's all I'm saying. All of the "why would he do this?!?"
posts are dumb for thinking that someone like the CEO of Netflix doesn't know
that this would be a pretty stupid split of the business if he didn't have to
do it to survive.

------
kariatx
Maybe they should have considered who already has the Twitter handle before
they settled on the name:

<http://twitter.com/#!/Qwikster>

~~~
nosequel
When I first checked this account he had 19 followers, now he's 600+. He's
going to wake up this morning thinking he's still tripping.

~~~
jancona
More likely he'll wake up to find that Twitter has given away his handle.

------
Jarred
I think the challenge for Netflix here will be to disassociate Netflix with
DVD rentals. People will go to Netflix's website, and expect their DVDs to be
there alongside their streaming movies.

~~~
Vexenon
When I think of the term Netflix, I think of watching flicks on the Internet.
I'm sure a lot of people don't look at it that way, but the term Netflix makes
a lot of sense when referring to a streaming service (as opposed to a service
that rents out physical media).

I know a lot of non-savvy people probably can't make that connection, but I
think the company will make it clear that Netflix is no longer the place for
DVDs.

~~~
grourk
When I think of Netflix, I think of renting flicks on the net... which is, um,
what the original name meant. Also there's the whole last decade of this
association.

When I think of Qwikster, I do not think of anything related to DVD by mail.
The only associations that come to mind are Friendster and Quixtar. It sounds
cheesy and cheap and fly-by-night.

------
ctingom
I bet a lot of customers evaluate Hulu and Redbox now.

~~~
ryannielsen
Why?

Current Netflix DVD+streaming customers will seamlessly have Netflix+Qwikster
accounts. Those who care about just DVDs or just streaming would probably have
already left or already transitioned to the appropriate Netflix account option
which would leave them with a Netflix or Qwikster account in the end, no
action on their part.

So how would this move motivate anyone who hasn't already left to look at
other services? I've seen other people on HN complain about needing to
maintain two accounts, but switching to Hulu+Redbox has that same downside,
removing that as a motivating factor to look at those options. Switching to
just one has the downside of losing recommendations and setting up a new
account. I don't see why anyone who hasn't already left Netflix after the
pricing changes would leave because of this decision.

~~~
bethling
Because by splitting the accounts - they've removed pretty much the only piece
of value that they provided over Hulu/Amazon/Redbox. There was one single
place that I logged on to with my ratings, my recommendations, my queues for
both streaming and DVDs.

Without that, their competitors are now almost pure drop-in replacements for
their product. NetFlix had an advantage (to me) in that everything was
unified. Now that they're split, that's gone - and they have to find some
other way to be better than the other offerings to justify me keeping my
subscription(s).

~~~
dave1619
I totally agree. Netflix unified gave me the added value I needed to be a
subscriber. Now that DVDs and streaming is not only separate subscriptions but
even separate accounts, the value of Netflix/Qwikster has plummeted to me. I
might just do Amazon for streaming and Apple TV for movie rentals.

------
msg
Roll out an "Import my recommendations" API integrated with IMDB and Amazon
and Qwikster and other rateable sites, and you might have no trouble.
Otherwise this is a very serious regression.

The customer wants one interface to rule them all, not to care about the leaky
parts within.

For the next trick, sawing the millions of babies in half...

------
jobu
I'm surprised they din't register the domain quickster.com as well. The QW in
qwickster is cute, but it's easy to misspell.

~~~
JoshTriplett
Apparently the lack of the 'c' is easy to misspell too. :)

------
demoo
Must have been a though move to make.

Renting out DVDs is a different business model and one that will be obsolete
in 2-3 years. Putting DVD rental prepares them for a future where they can
fade out or sell the DVD business and go abroad with a simple offer for the
Netflix brand.

------
zoowar
Let's hope Netflix can compete without having to splatter advertisements
throughout the stream.

~~~
redthrowaway
I'd be okay with a two-tiered system: a Netflix Light that is cheap and ad-
supported (hopefully at the beginning, not interspersed throughout), and a
Netflix Full that offers no ads.

Mostly though, I just want to have a decent selection in Canada. I was
chatting with a friend about the possibility of doing a movie streaming
startup, and I couldn't get past the fact that Netflix's biggest problems are
not of their creation; they come from the studios. I wish them the best of
luck, and hope that someday I might be a customer, but I'd hate to have to
deal with the rights hassles that they do.

~~~
arohner
> I just want to have a decent selection in Canada.

As an American, don't worry, the selection isn't very good here either.

------
sandieman
dvdflix would have been a more appropriate name

~~~
puredemo
Until the medium changes.

------
pramanat
Aren't there some synergies they would be missing out on by splitting into two
companies? For instance, their recommendation engine.

------
pnathan
+1 to Mr. Hastings, sheerly for the courage and grit it took to write that.

