Smart businesses know that when you've got a customer setup for recurring monthly billing, there's a certain percentage of these customers who will continue to pay even though they're not actively using the service. Part of it is laziness of figuring out how to cancel. Another part is the thought that they may someday use the service more than they are. This has been the model for gyms forever.
What Netflix did was force people to re-evaluate whether they truly were getting what they paid for, and in the process they added complexity to their branding by spinning off part of the service into a hard-to-spell company that had nothing buy a landing page.
While this may be good for today's stock price, I suspect many of Netflix's customers that re-evaluated their needs may not come back for quite a while ... if ever. There's more options available for media than there likely were when they first signed up for Netflix ... and if those competitors are smart, they'll target those customers to ensure they're aware of the alternatives.
1. they made streaming a free add on to DVDs to get people using the service, which resulted in streaming becoming popular.
2. The media owners started to (or perhaps always had) cut their deals with Netflix on a per subscriber basis rather than per view. So Netflix was paying the networks for everyone who subscribed, including evyone who only watched DVDs. This became unsustainable.
3. So, they needed to separate these people, thus the split.
I honestly don't see how they could have handled this differently, they needed to tack the service on to DVDs to get people on board, and they needed the services to be separate to actually make money on streaming long term. It might have worked if they had been able to pay for videos on a per view basis, but I'm not sure they have the clout to make that happen.
"However, the contract Starz has with Sony has a subscriber cap with regard to Netflix. The home entertainment company now has more than 23.5 million subscribers, which exceeds the cap. Starz pulled the movies from Netflix so it wasn't in jeopardy of violating its deal with Sony."
I think it explains the facts in the simplest way.
Netflix competes as a delivery pipe for content with Cable providers.
Cable providers already get ~$50/month for your Internet connection, and spend (collectively) $32 billion/year on streaming content, aka "cable TV".
Netflix wants to build on top of the network infrastructure of Cable providers while paying far, far less for the same content. This is their business strategy.
Verdict? Sell your Netflix shares. They are trying to operate a toll booth on a road they don't own. Furthermore, the actual toll operators (the Cable providers) are already getting 3-4x the $$$ from users, are already paying for the streaming content, and they show no history of being as stupid as the music companies (Tivo anyone?).
I don't see how Netflix can compete. That streaming was Hastings' personal vision for the company means nothing without a way to get there, and as far as I can tell, short of legislation, there is no way to get there.
Currently, the content industry gets $32 billion/year for content. There are still a few people ("marginal consumers") that aren't paying for content now, but at a much subsidized price, are willing to view it.
These are the customers Netflix has right now for streaming.
Now here's the problem: marginal consumers are only marginal when the represent an insignificant portion of users. When they grow numerous enough, the pricing terms have to change. That's why Netflix is jacking up prices.
Eventually, Netflix will have to pay the same price as Cable providers for content (and it's nowhere as close to as cheap as what Netflix is charging now).
This is not the case. Getting access to the content will cost you an additional 70-100 per month, depending on the content package. That's significantly more than Netflix wants to charge, and the delta is a huge part of Netflix's appeal.
Your "toll booth on a road they don't own" comment sounds alot like Ed Whitacre's "my pipes" argument, and could be applied equally accurately to any non-free service that operates on the internet ("road they don't own.")
I mean, on the one hand, the cable companies are tied up with the old "channel" model and many of their subscribers are paying for shows they never watch. But, if the content companies are going to charge Netflix customers for shows they don't watch too, it is going to be very difficult for Netflix to compete.
For watching the trailers I prefer Apple's site: http://trailers.apple.com/trailers/
But I can't argue very strongly against your point as it was a complaint of mine before I dumped cable.
Although if cable would give me access to all their content (tv, movies, sports, premium channels) for one affordable flat fee I would go for it.
After the most recent bad disc, I did what the OP mentioned, and honestly looked at what value I was getting out of the service, and I ended up cancelling. I understand that discs get scratched in transit or handling, and I understand that I'm living in the past as far as digital vs. physical media goes, I just think what it boiled down to for me is that when you separate the DVD and streaming services out, neither of them really stand up on their own as worth their cost. I'd probably re-subscribe to the streaming if they improved their selection or lowered the cost failing that, but I don't think I'd bother with discs again.
Either one alone? Incomplete service.
Both? Not enough value at the 2X price.
We kept our subscription open until the day the price hike would hit us (How does Netflix get away with "the moment you cancel, your subscription ends, no refunds for partial months"?!?), then canceled completely.
I tried to send them feedback explaining our decision, but I could not locate a "contact us" via internet vs phone, and I didn't care enough to call them.
I was on a $4.99 1-DVD at a time plan. Then I was on an $8.99/month unlimited streaming plus 1 DVD (yeah, unlimited streaming is worth the extra $4).
Nov 2010 it up $1/month. Then this year it underwent mitosis , becoming two $8/month plans.
Yes, $16 is less than 2 * $9, but the process feels like a 2X increase in under a year.
So far as no partial refunds, I know their agreement says that, but I saw a partial refund to my credit card within a week of canceling.
Then the split came. Quadrupling the price of "someday..." wasn't worth it. Copied the lists to a text file, and cancelled. Insofar as Netflix streaming doesn't have everything, iTunes (yay AppleTV!) has most everything else available on a whim for a mere $2-5/rental. With kids streaming their shows on demand (no scratches! no fingerprints! no oatmeal in the DVD player!) from a vast instant library, and me not watching much at all (but when I do, a few bucks for "this, now" works fine), one slick box fusing a few streaming video services (yay AppleTV!) works well.
I'm not sure how Netflix intends to attract back the million or so who cancelled. We've adapted; why return?
Since 90% of what I actually want to watch is only available via dvd, streaming was more of a convenient addon than the core product. That I was going to lose the integration between streaming & dvd made streaming pointless.
The combo of streaming and dvds is still less than we were spending (in $ and hassle) on dvd rentals from the local big-selection store most months. (And comparing any of this to the entertainment option of cable is a big win, obviously.) Redbox seldom to never has anything to interest me, and the lack of depth to the Netflix streaming catalog precludes me wanting streaming alone. I'm somewhat bad about holding a disc for a while (b/c I often get documentaries and educational stuff, so I have to be in the right mood), but my wife watches what she gets very quick, so that common complaint doesn't bite us much.
She regularly gets dvds that are rare enough that they have to ship the disc from across the country, and I really like that Netflix will send us the next disc from the queue to "make up for the delay" which has never been much of a delay at all. So, many times we have had one more disc on hand than the plan we pay for. Good customer service like that is still something Netflix does. The two-websites and queues plan made me worry they had lost their senses, but this reversal and having had three discs this week when I pay for two has me still in the loyal customer column.
DVD service is still valuable because there's literally no other way of watching movies that aren't available for streaming anywhere, Netflix or otherwise (which add up to a depressingly large amount). However, I am looking into Redbox as an alternative (which I wouldn't have done had Netflix not segregated their service...)
Streaming, despite the recent poor selection, pays for itself easily in the few TV series that we watch and are available. Spending $20 to buy a series on DVD or Amazon streaming vs a Netflix streaming subscription is a no-brainer.
If it ever happened that none of the series we wanted to watch were available on Netflix, we'd probably cancel (and renew if we found one we did want to watch.)
However, the split made me livid, especially with the implicit message that Netflix doesn't want its original customers anymore. While that motivation probably hasn't changed, I'm placated for now that they're at least keeping the service under one roof.
We were not either, so I would usually rip the DVDs when I got them and then watch it when we had time (also my only dvd player is a 360 and it's so loud...much better to stream over the ATV). After watching I would delete them...honest, I rarely watch a movie twice. Recently that became harder though because of increased copy protections.
How did other HNers respond to the price hike?
Canceled the DVD service the day the price hike was announced.
I thought about getting a ps3 for the BRD functionality and games, but at this point I don't want to deal with any physical media. Even if the 1080p is better, I've never looked at the movies streaming through the ATV2 to my 46" LCD and thought the 720p picture took away from the movie. Then again, I'm old enough to remember being the human remote control for my dad and I still have an old tube TV in the bedroom :)
You're probably right about 720 vs 1080. You've go to be pretty close to see the difference on a 46" screen. I believe I read that someone with 20/20 vision has to be closer than 8 feet to see the difference on a 50" screen.
If I was building a home theater setup with a huge projector (or giant LCD), dolby digital (7.1 now?), etc... then of course I want the best quality in everything I can get. A friend of mine has one of these setups and it is amazing.
The above is quite different than the family room TV though. I've seen BRD quality on my 46" TV and yes I can see the difference, but I have to look for it. It's been my opinion for awhile that picture quality and sound at 720p or 1080p streamed is mostly 'good enough' and people now want convenience.
As for streaming, from what I understand, 720p is actually better than 1080p when streaming, because 1080p streams end up getting compressed to the point that they actually look worse than the 720p equivalent. Fuzziness from stretching the 720p signal is less visible than blockiness from 1080p compression. Blu-Ray obviously doesn't suffer from streaming limitations, though.
I don't see how Netflix streaming is a good deal unless there is a significant increase in the quality of available content and that doesn't seem likely to happen anytime soon.
If you have them, it's worth it. If not, it's harder to justify.
The selection for kids was just a bunch of the same cartoons the networks re-run all day long every day on cable that we don't like them watching, so it didn't seem to make sense to pay extra so they could re-watch more of the same junk more often.
We cut the cable cord over a year ago, relying on Netflix Streaming for older content and iTunes for newer stuff. Even paying for the iTunes stuff, we're WAY, WAY, WAY ahead. I should do that math someday...
For things that aren't on Netflix, we sometimes use Redbox or Amazon's On Demand rentals, but mostly it doesn't exist for us.
I was probably buying a different service than Netflix thought they were selling: All the streaming movies I can stand for about $10/month, with DVDs as backup if they aren't streamed.
As others have noted, neither service on its own is worth the price to me. Streaming quality is OK. DVDs are usually playable but not always. Once I start the DVD and settle in with my popcorn, a refund or the next movie can't make up for the disappointment and wasted time of a half watched movie.
I'm price sensitive these days, as are a lot of people. I'm going with the library, and the occasional PPV on Amazon or Youtube. I don't have to watch every new movie, and most of my viewing was classics, indie and foreign anyway.
We were more annoyed by the Netflix change than enraged by it, and it was a convenient reason to examine the value vs. expense ratio of what we were buying every month. So while we used both the streaming and DVD services, we didn't use them enough to justify the expense. Same with cable. Now we just watch less TV and play the same amount of video games. Library card and internet usage have increased.
The biggest streaming issue was that I often watch movies with subtitles because a friend is hard of hearing. Subtitles were a grossly unreliable feature; they would appear at odd times, often in a big rush, making them useless.
(This when watching a movie via the Wii.)
I think what we (well, I) don't know are Netflix's costs for DVD rentals compared to streaming and how that will look in the future especially with the studios and channels negotiating new deals. Clearly they are trying to move everyone over to streaming and are now correcting because it appears that the public isn't quite ready for that yet. They found it necessary to shake things up when they could have enjoyed the gym model. I think they're a really smart company so there must be something behind it.
wow, when netflix first came out with the decision I thought it was a brilliant plan for a future business school case study of gross mismanagement of a formerly successful company.
Raising rates by 60% in a poor economy and making it hard for your customers to manage their movies? (not to mention throwing away brand equity of netflix in exchange for qwikster?) i wonder if the ceo has been on crack.
Without the support of content providers, Netflix went from disrupting the cable TV industry to playing catch up with HBO. Its only hope now is to produce some killer original content, license what it can, and sell its premium "channel" as a supplement rather than a replacement. All of the upside from its slowing DVD business will have to go into content production, which will eventually put it on even footing with HBO, Showtime, NBC, CBS, Fox, et al.
If I had to guess, the original plan was to sell off Qwikster. Get the cash up front for the content push. But now that's not going to work, I guess they're just going to milk it until it's done instead.
More worrying is what they did to the recommendation engine after the split. Although I have yet to decide whether the recommendation engine is worth my while, the positive PR created by the Netflix Prize convinced me at least to give it a sustained try (and to encourage a friend to give it a try) which means rating a whole mess of movies I had seen.
Well, guess what? After the split, streaming-only customers cannot rate titles that are unavailable on the streaming service.
For example, when I find myself on the streaming service's page for The Lord of the Rings: The Two Towers,
I see a message that says, "The Lord of the Rings: The Two Towers is not available to watch instantly. Watch The Lord of the Rings: The Two Towers on DVD! Add unlimited DVDs for only $7.99 more a month." But I see no way to rate the movie.
Also if Netflix's negotiations with content owners means Netflix loses the right to stream a movie I already rated, I guess I will no longer be able to use Netflix's web site to see that rating.
In summary, as part of the split, Netflix management hobbled the recommendation engine for no good reason that I can see. Netflix seems to have lost sight of the fact that people use their service because of their interest in movies.
A company with a culture of fear is a company that is on a death spiral. Hopefully Mr. Hastings has the self-awareness to recognize this problem and the gumption to act on it.
Employees ask tough questions during company meetings and our executives are incredibly open. I guess we've become complacent because their decisions had been bold and right before these past couple of months. I believe this is why there was not a stronger push back internally.
The culture of fear, OTOH, is problematic in the extreme. It doesn't matter what the organization looks like if people are afraid to do and/or show their research for fear of pissing off the powers that be.
If you have a Netflix account, look at reviews of The Black Tower or The Tudors. For weeks they've been broken -- out-of-sync audio/video on The Black Tower, mislabeled episodes of The Tudors season 2, I guess Whale Wars was also mislabeled (http://www.reddit.com/r/netflix/comments/i74kw/after_a_few_c...). Use the standard form to notify Netflix of the problem or even complain directly into the reviews... you might as well talk to a brick wall. Same thing if you're upset that they constantly wait until right before a series is about to be pulled from instant streaming to post a notice.
None of that would take any significant investment to fix, just a commitment to deliver an excellent customer experience. It's obviously not the reason why the stock price halved itself lately but I feel it demonstrates the sort of lazy arrogance towards the customer experience (as does the Quikster saga) that will ill serve the company when it faces some real competition over the next couple of years.
(I did keep my 2 DVD + streaming plan through the rate increase though.)
With all the effort it takes to encode original content, you'd think they'd have really strict policies on how the content is encoded and QC procedures to make sure it's done right.
Note: I canceled my streaming subscription in favor of Blu-Ray rentals.
Customer expectations are a bitch because people believe $10 is the right price for Netflix and $16 is outrageous, even though this is a fraction of the cost of all traditional options. Now that expectations are set, price hikes just enrage people. But for a good selection of streaming content, people are going to have to be enraged for a while. We already saw what happened to Hulu. The reality is that studios are not going to let their revenues be decimated just so that we can live in our utopian future of streaming anything we want for $10/month. That is such a kick in their gut that they will be willing to spend the money to all build their own shitty services that fail over the next 4-5 years, put up with rampant piracy, and take any number of viewer-hostile actions all to avoid accepting Netflix's vision. Eventually I believe the market will cut them down to size, but getting everything you want is going to cost more than $10/month.
I give Reed Hastings a lot of credit for trying to bring the future faster by focusing on streaming, but he overplayed his hand. Netflix's clout comes from its user base size and the fact that it's DVD business is unassailable by big media. They're not going to be able to throw their weight around on streaming deals, and studios will be dragging their feet anyway. The smart thing to do is to focus on streaming and always be aware that it's the future, but keep DVDs as a value anchor so customers can justify the mediocre streaming selection.
Coca-Cola was one of the world's great marketers. How else can they get you to pay so much for water + sugar + a jolt? (And how do they charge more for water than Exxon charges for gasoline?) They made a huge blunder in the 80s abandoning the classic formula, with a New Coke that was better by all objective measures. Despite all their market research telling them how good it would be (blind tests, etc) their customers revolted. Shortly thereafter, they backed out of the decision. The Chief Marketing Officer (Sergio Zyman) even turned lemons into lemonade, making a career as, "What we learned when we got New Coke wrong."
Netflix made an awful decision. If they were a large static company (or government!) they would have had a hard time backing out of the decision. I'm sure there was plenty of research and consulting powerpoints explaining why it was a good idea, so everyone was covered. Unfortunately, it was a decision that could have destroyed the company. Bravo for Netflix acting decisively and correcting it's course! They likely saved the company.
New Coke was a known bad transition. Why would I say that? All you need do is to look on a Coke can ingredients list from before New Coke and after New Coke. There will be one change:
High Fructose Corn Syrup.
Or if you wish to try the classic formula, try the Mexican version of Coca Cola. They still use the old formula using cane sugar. There is also a Kosher version of Coca Cola that uses the older recipe.
(Not the primary focus of the snopes page, but they cover this sweetener change and debunk the myth surrounding it.)
I know their content problem is not completely their fault, though if they offered higher priced plans I'm sure their content selection would improve. Different price points should be offered from $8 to $25 or maybe $30.
Overall between these bi-polar business decisions and continual lack of good content I'm happily getting my content fix from other online outlets. I was a huge fan a year ago but in the summer it started to lose it's appeal.
In much the same way their billing is greatly influenced by the decisions of the content creators. If the creators demand more money for content, well, for Netflix to maintain profitability then the charge for service must go up.
Also, I guess what you want to see and what I want to see vary greatly as they just recently added about six new shows (of several seasons each) to their lineup that makes me happy and have gotten new seasons on others.
But hey, to each their own I suppose.
Hulu, YouTube and other streaming sites I won't mention offer me what I seek at no cost(Mac Mini connected to LCD TV). Though when I first started Netflix streaming in Nov. 2010 there were some great offerings (TV shows, super hero cartoon series & movies) though by this summer I just kept seeing more B grade level junk. Thus they lost me as a subscriber and Netflix promoter.
There current bi-polar actions just seem like a company with a once strong brand name is imploding.
Anyway, I fear streaming price increases next year for sure as all the media outlets start to gouge netflix and they pass it on.
Best thing netflix can do is make sure consumers know which distributors are purposely giving them horrible contracts and that it's not netflix's fault.
Probably would've killed the ipad, too.
It's possible it could work a few times; get consumers to go after them. But I think some would have negative reactions. Kids gloves may well be the best bet.
In many ways they were violating the faster horse theory: asking us if we wanted better streaming service or better dvd service. They were focused on technical details (do you want a horse or car) rather than the bigger picture (better travel - I don't care if it's by car or horse or teleportation).
100,000 is overkill. 1,000 is reasonably sufficient.
As a developer, I wonder if they're still sticking to their plan to make the API streaming-only?  As much as I didn't like the idea of Qwikster, I was hoping it would provide a dependable DVD API.
If you're a content provider, why would you want to take anything less for your content than everything Netflix could afford to pay? Particularly since there are other options (e.g. Amazon, Blockbuster) that could grow to compete with Netflix.
It will be interesting to see how things play out between the media streamers and content providers. Unless a media streamer can get an essential monopoly on its market (e.g. Netflix in movie/TV, Spotify in music) to be able to set favorable terms, I think its going to be difficult for any streamer to be really successful.
I agree with many others that Netflix is doing a fantastic job of destroying its public image and goodwill, which is opening the door for other companies to make a push. And their streaming selection is so limited - I got the streaming trial, but couldn't find a single movie on which I wanted to spend two hours of my life and cancelled the trial a week later having watched nothing. I can't imagine paying monthly fees for this library unless I wanted to watch a certain TV show - but I'd probably cancel again as soon as I finished that show.
Couldn't they have done a little market research and discussed some of their ideas with existing customers to solicit feedback and determine if what they were thinking was going to be accepted by their client base? Microsoft does this all the time, and I'm sure many other companies do.
Instead, Netflix is making hugely public announcements about changes in service, and then backpeddling or apologizing when their customers get upset.
They took a brand that (in my eyes) was almost as venerable as Amazon and just thrashed it. They lost a ton of good will (and market capital).
People (including me) used to love Netflix. They, like Amazon, always seemed to do the right thing for the customer.
I'm sad. They are too few good companies in the world.
The email that came a few weeks ago actually had me stop what I was doing and read it (I was walking in to grab coffee, and I stopped outside to finish the email).
That message was full of excitement, and started with a proper "Dear Customers: I screwed up".
Why haven't I gotten an email this morning saying something similar? This time you really did screw up. This time, I cancalled my service
(And there is about 0 chance that I'm re-instating it)
I was in the "Meh, I'll keep this around because it's only a few bucks a month, and, well...they do have all of the firefly episodes. Maybe the selection will get better eventually."
I wasn't really using netflix very much, and the qwikster announcement caused me to re-evaluate wether it was actually a service I wanted.
I have a feeling there was a lot of people in my shoes that cancelled.
All in all, its probably a good move for everyone (shareholders, customers) and even for Hastings, assuming his Steve Jobs delusion has ended.
From what I've read the current games-rental-by-mail offerings kind of suck, which is why I've never bothered to try it. I'm kind of interested in a Netflix-version of this so I hope they go forward with it. I was actually almost ok with the split, and prepared to subscribe to both, specifically because they were going to add games.
And, this isn't the first time Netflix pissed off customers. A few years back they tried to eliminate the ability to create multiple queues in one account-- they used some ridiculous excuse about technical issues.
However, once Amazon and other comers start establishing themselves in the market, Netflix would do best to get its act together or perish.
I've attended some technical presentations on Netflix's streaming infrastructure. It's very well executed. However, at the user interface to the queues, streaming, and dvd infrastructure, they seem to be having technical difficulty or are making some bad strategic decisions. It feels like the estimation is that it's too hard and they're backing away from supporting well integrated queues and/or they're underestimating the value of the integration they have provided to the user.
I think it's hard to integrate, but in the end worth the work. The harder you make a customer work to access programming, the easier it is to evaluate other competing services.
I don't think there are many people who are going to make the switch to Dish Network because of the ability to pay to stream a very limited library. If Blockbuster offered the streaming package to the general public (like Netflix), then we may have some real competition.
I was convinced that this was bitter medicine, but impressed that Reed Hastings was doing it. I figured if they separated out Qwikster, a solid, cash-generating business, they could sell it to raise capital to buy better streaming content.
I only use Netflix streaming, and Reed has stated from practically the very beginning that his vision was streaming in the future. DVDs clearly (at some point) will no longer exist, and I thought selling off that business now, while it still had some legs, was a good move for the long, long term.
Maybe they had a suitor for the DVD business that backed off. Or maybe it really was a change of mind. I don't know, but I'm disappointed overall.
With their stock tumbling because of the price hike then anyone with any common sense would have known that this would increase the speed of the fall. In fact, the conspiracy theorist in me suggests that this was pushed in an effort to build cash by shorting the stock.
The problem here is everybody (customers, investors and pundits) thought it was a horrible idea. They thought the value of two separate companies was half the value of a single company. That is not the normal path when a company spins off a piece of itself.
Although I didn't assume that investors would automatically get shares in the new company to equal the value they lose in the original company. It's nice if it works out that way but I just don't assume that kind of thing.
Netflix really doesn't know what it's doing.
Perhaps they realized that if they spin off their DVD business that there would be blood in the water and the likes of Amazon Prime and Blockbuster would feast at their expense. While I do think that online streaming is preferable to DVDs-by-mail, the fact is that there isn't enough online content available for streaming and the DVDs nicely fill in the gaps and I honestly don't think DVDs-by-mail will die off as quickly as they first thought.
It makes sense to keep DVDs-by-mail until their online streaming selection is much more broad, diverse, and containing a lot more quality content.
Better to admit now that they didn't know what they were doing, than to keep doing something wrong for fear of admitting to a past mistake.
If the split was a mistake, then any embarrassment about correcting it now will be orders of magnitude less expensive to them than failing to correct it.
If you doubt this, take a look at Hulu. Hulu's a strong streaming TV brand because of its content deals; it didn't need to tack on the names of its industry sponsors to become the place to go for streaming TV.
Now Netflix is saddled with trying to be two things at once. Just because one company is trying to do two things doesn't mean it needs to stuff them both into a single brand.
Had all of these shenanigans not happened I probably would have been too lazy to cancel Netflix for another year or two.
Dear Reed, Thanks for reminding me that Netflix sucks and I'd rather read or exercise than watch movies!
Netflix did not develop anything for Qwikster, but got meaningful feedback [and reconsidered].
Nonsense. Losing 1M out of 25M customers while increasing profit does not translate to loosing $200 from a $300 share price.
This bad news is nothing more than an excuse for insiders to sell shares that they otherwise would not be able to do.
There are more problems deeper inside.
It's good they righted their mistake because nobody will be talking about this in 6 months.
IF it doesn't make sense, it is a conspiracy by default.