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Netflix kills Qwikster (allthingsd.com)
384 points by sajid on Oct 10, 2011 | hide | past | web | favorite | 159 comments

While this rights the ship, Netflix made the colossal mistake of rocking the recurring-billing boat.

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.

The most convincing explanation of their actions I read was essentially:

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.

I think they were paying a flat amount for an up to X million subscribers, not a per subscriber fee. Then they got close to the cap and needed to remove the people from the cap that weren't really using it, but the contract counted everyone that had access. It's pretty much the same thing though.

Where does that information come from? Is that a common way for such deals to be made?

Here is where I saw it:

"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."


Please note that it was Starz who had a contract with sony that had subscriber count as a term in the contract, not netflix.

He pulled that information out of thin air. It is not true.

I found the article I summarized here: http://www.outsidethebeltway.com/whats-really-behind-the-net...

I think it explains the facts in the simplest way.

My take home is this:

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.

For those wondering why Netflix was allowed to stream content at low cost so far, here's the reason: marginal consumers.

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).

Your argument implies that when you pay ~$50 for an internet connection, you also get access to all the streaming content ("aka cable TV") from the Cable company.

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.")

That sounds right to me. Honestly, worded that way, I'm a bit dumbfounded at their audacity.

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.

And if Netflix is smart, they'll figure out how to leverage their pervasive device-integration to offer one-off non-subscription-based rentals. Price it aggressively enough to compete with Amazon and Apple ... and after re-earning the trust of these customers, make the case to convert them to subscribers by showing them the financials. Simple emails with messages like: "For $2 more than you spent last month, you could have access to X million more movies" or "If you were a subscriber you could have saved $6 last month?".

I'd rather they keep the one price for everything plan. Once you start having tiered prices for different levels of service you are well on your way to the current cable TV situation we have now.

One of the strongest criticisms of current cable TV is that their selections are not fine-grained enough (e.g. I don't want to pay for HGTV and ten other useless channels just to watch the Discovery Channel). I don't think the one-size-fits-all approach works well with entertainment media.

The solution to that seems (to me) to be to charge, e.g., $50/month flat, and pay the content owners based on usage. So if you don't watch HGTV, they don't get your money. This would allow access to all the programming without requiring that you pay for what you don't use.

The dirty little secret is that most of these channels are very cheap. The only expensive ones are ESPN and other sports programming. People who dont watch sports subsidize those that do.

We've been without cable TV for years. Any time I talk to people about cutting their cable TV the only objection is live sports.

I went off cable a year ago. The only thing I miss is ads for upcoming movies. Weird, right? Everything else I want I can get online, but I had come to depend on ads to tell me when a good movie was coming.

There are several sites to (text) preview movies, here are my favorites: http://www.denofgeek.com/movies/ (action) http://twitchfilm.com/ (thriller/horror/asian) http://io9.com/ (science fiction)

For watching the trailers I prefer Apple's site: http://trailers.apple.com/trailers/

My girlfriend always seems to know the plot of every movie. For a while I was wondering when she was finding time to sneak off to the theater, and why she was doing it without me. Her secret was just that she watched just about every movie trailer at apple.com.

It's interesting to see the differences between major sports. It's trivial to replace your cable TV with online viewing for baseball, but impossible for american football.

@derekprior is correct, ESPN runs like $2.85/month vs USA Network which is like $.60/month. (this is what comcast pays them to broadcast it to you).

I'd gladly pay multiples of that price for the ESPNs, if I could buy them a-la-carte.

It seems to be working quite well for new media companies on the internet.

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.

I think Netflix needs to add tiered pricing for streaming anyway. They need pay-per-view, or something similar, and they'll probably add it at some point. It's the only way they'll get new releases. Once they build that infrastructure, there's no reason not to sell their standard catalog as pay-per-view to people who don't want to pay the subscription fee, so long as they don't price it to cannibalize their subscriptions.

I would be uncomfortable paying extra for something on Netflix when I already pay a flat rate to get everything. Pay-per-view services would be a slippery slope that I wouldn't be pleased with. I hope they keep pay-per-view to some other company/service-by-another-name-that-isn't-advertised-on-Netflix.com.

We switched to the streaming-only plan before our billing cycle and have been happy ... We weren't good at quickly watching the DVDs and returning them anyway plus we saved a buck a month. How did other HNers respond to the price hike? I would expect this group to be dominated by streamers anyway.

I went DVD-only. I had worked up a list a mile long of movies I wanted to watch, and most of them were only available on disc, so I ended up going with that, figuring when I was done I could switch to streaming (and by then they'd probably have more content). I had some trouble following this plan, however, after the 3rd or 4th disc in a short while stopped playing on me or skipped around half-way through. Every time it had happened, I cleaned the disc carefully, and then reported the problem (if it persisted) through their site. The only recompense they offer for this is to either send out a replacement disc or to send the next movie out, and as I'm midway through the film, and don't exactly want to wait 3 days to finish it, I ended up always just skipping to the next movie, or suffering through the skips.

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.

We looked at the value: not-deep-enough streaming catalog plus deep DVD catalog was a great service and a good value.

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.

Isn't "Not enough value at the 2X price." a bit hyperbolic? Most people would say a 60% cut is "around 50%". I'm not trying to criticize you, but there seems to be a systemic overreaction that I can't quite figure out.

It's not hyperbole, it's historical prices & rounding.

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.

I cancelled with the same logic you used. I too tried to let them know, but there wasn't a good option in their exit survey, which was actually biased to mask my actual opinion. Instead, I posted to my blog. [1]

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.

1: http://alt-tag.com/blog/archives/2011/09/dear-netflix/

I did the same, first switched to DVD only before the price hike ( couldn't find anything on streaming I liked... ), then just today cancelled the DVD service, probably wont be back as a customer...

Having a couple discs rotting on the shelf for a month or so before watching seemed a good indicator to cancel, but having gone thru the trouble of setting up two queues with 300+ titles I wasn't keen on losing that list and the eternal hope of someday getting to those movies. For a couple bucks more a month I'd retain the lists and, someday, watch the movies.

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?

Cancelled streaming due to the split, not price hike.

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.

We did the reevaluation, but it still came out in favor of keeping both dvds and streaming.

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.

The price hike wasn't a big deal for us. It's still well worth it with our viewing patterns.

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.)

I've been a hardcore user for many years, and I didn't mind the price hike. I go through maybe ten discs per month, and use streaming frequently, all for much less than cable. If the raised rate had always been the normal price, I would have paid happily and not thought twice about it.

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 weren't good at quickly watching the DVDs and returning them anyway plus we saved a buck a month.

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.

How do you do your DVD ripping? I like to rip DVDs for my iPad, but was disappointed to learn that HandBrake won't do deCSS on Windows. I'm not keen on paying $50 for a 3rd-party decryptor just so I can watch movies I own on the bus.

I use Handbrake for Linux with the "High Profile" and the quality bumped a little because with the default quality I could still see artifacts on my TV. Actually I use a little script that I wrote that wraps Handbrake--it collects metadata from the net and also makes ripping TV shows pleasant.

Thanks. I don't think I want to mess with dual booting to get HandBrake on Linux, but I hadn't even thought about it as an option until now.

Handbrake on OS X. The latest SVN version usually worked with most movies.

Thanks. I was hoping since you had an Xbox, you were ripping on Windows. I've used HandBrake on OSX before, and it worked great. I just wish the Windows version would handle DVDs the same.

I have an ATV2 for streaming movies from the mac and netflix streaming. The xbox360 only plays games and occasionally plays DVDs - I think I rented a movie a few times from xbox marketplace and it worked fine.

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 :)

I've got a PS3, specifically for Blu-Ray, but I rarely use it for that any more. I use it for Netflix, and at this point any number of devices could handle that. If I were buying a Blu-Ray player again, I'd probably buy something else. I got a first-gen, when the PS3 was still the cheapest. But now it's not, and I don't game, and having to use a dedicated Bluetooth remote is annoying. Also there's no Amazon Prime app.

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.

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.

For sure, if you're setting up a proper home theater, the 1080p media will make a difference. For the family room, I agree the difference is minimal. At typical viewing distances, it's probably not even visible.

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 appreciate it, but I've used that before. I really would prefer not to spend $50 to rip DVDs I own if I can avoid it. I don't really understand why HandBrake has this capability on OSX but not Windows.

DVDFab has a free version built in called HD Decoder that relies on ImgBurn to build the ISO file. That's how I rip DVD on my Win 7 box. If you're looking for an encoded rip, then I'm not sure what your options are.

Thanks. I'll look into that. I don't really care whether I have to rip and encode separately. If I can rip the DVD, then I should be able to feed it into HandBrake.

Use "DVD Decrypter", it always ripped everything perfectly for me.

I canceled the streaming and kept the DVD plan since I could never find anything worthwhile streaming. Then I signed up for Amazon Prime which is cheaper, has roughly equivalent streaming content and the nice shipping.

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.

I have kids who watched the streaming service every now and then, but still canceled it and went Blu-Ray/DVD only because, in my opinion, 99% of the streaming content is awful. It's like the old cheap-rentals section at Hastings.

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.

I always seem to find some television series that's available via streaming that my wife and I want to see. Each time I say, "We should cancel streaming when we're done with this" and each time we find something else that fits the bill. Firefly. Battlestar Galactica. Sports Night. Better of Ted...

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...

We almost never used the DVD service, but the streaming service is our primary way of watching TV -- the kids watch it frequently, we use it to watch with varying frequency, but either way, we rarely watch something on actual cable.

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 cancelled Netflix outright, after being a member for 11 years.

I canceled DVD delivery after the price-change ... then streaming after the Qwikster was announced. I did the math, and determined that Amazon and Apple offered everything I needed in a pay-as-you-go structure that made more fiscal sense to the way I watch movies with a much better streaming selection.

Canceled both. I was on the streaming plus one DVD plan.

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 had (and used) both services, but the price hike caused us to reevaluate all of our media expenses. Cancelled all Netflix and our cable. Retained Xbox Live (and internets, of course).

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.

That's interesting to hear. Netflix forced you to re-evaluate the value proposition and it makes sense to consider all forms of entertainment while you're at it. I wonder if there are a significant number of people like yourself that also took this opportunity to cut the cord on cable (and satellite).

I would have loved to cut off the cable and rearranged our streaming choices, but my wife is a rabid college football fan and I'd be in the dog house ;)

I went to DVD-only. Partly it was the occasionally crappy streaming experience for my own viewing (most of my machines run Ubuntu; I've a dedicated Win7 laptop that is perhaps underpowered for Netflix streaming). Too much pausing and image freezing while sound continued.

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'm streaming only. It boils down to me not watching enough TV to justify the two. I might spend 3 hours in one evening consuming some form of media, but I have to decide whether I want to play a game or watch TV.

This is correct and I can't imagine that Netflix didn't think of this as well.

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.

Some businesses downright abuse this and make it damn hard to cancel. One that immediately comes to mind is Boingo.

See also: Angies List.

Equifax makes you call in to cancel, and will offer a free month to keep you on.

I wonder what their response would be if you kept calling in each month to get the free month...

If i remember correctly, netflix's streaming contracts expired and they had to sign new contracts with the movie studios for streaming that basically forced netflix to increase their prices. These contracts are also the reason that netflix "decided" to not send out dvds until 30 days after the movie has been released on dvd.

netflix users, you guys can thank me! looks like the email i sent to reed hastings positive effects now that they're backpedaling on the decision!

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.

As an outside observer, Netflix appears to be in a state of panic over the content providers playing hardball with it. Much like Google, Netflix has such a huge lead nobody wants to give it a fair break anymore. In many cases, companies won't even give it an unfair break.

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.

From the nytimes article [1] it sounds like the investors let him have it "Three days after the announcement, Mr. Hastings wrote in a Facebook status update, “In Wyoming with 10 investors at a ranch/retreat. I think I might need a food taster. I can hardly blame them.”

[1] http://mediadecoder.blogs.nytimes.com/2011/10/10/netflix-aba...

For anyone else who didn't get this right away: by "a food taster", he means that he thought someone might have poisoned his food. (It only took me a second, but it's not that common a usage today.)

In explaining the split, Hastings cited the need for the streaming business to stay focused. In other words, Netflix took away a convenience many customers wanted to address a need internal to Netflix's management. That's less than ideal, but I understand the need for the company to face up to reality and shortcomings in its capabilities.

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.

It's particularly bizarre that the UI doesn't simply display those movies in a similar manner to how unavailable discs have always been displayed: You can "save" them for when they become available, and you can most certainly rate them.

You actually can rate DVD only movies, but you have to click into the movie's actual page (where all the reviews and comments are) to do it...

I get it now. Thanks.

You'd think it wouldn't be that hard or hard on the UX/UI to add a button or filter of some sort.

What's going on at Netflix? If you ask employees, they'll tell you that the culture - often praised for its high performance standards - is a culture of fear. It's a product management-driven organization where PMs aren't afraid to use the poor performance card to remove subordinates who don't go along with their ideas. The emperor has no clothes. In Netflix's case, the emperor is any product manager. It's no wonder there was little pushback internally on Qwikster - the name or the concept. Who has the guts to say no?

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.

I'm a Netflix employee. If you ask me I'll tell you in no uncertain terms that it's not a culture of fear. I've been here for one year and have only seen one person removed for performance reasons. Fear is never a driving factor in any of my decisions.

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.

I would hope Netflix would be a product management driven company. Companies that aren't make far more stupid decisions than companies that are. I'm not sure what that has to do with the rest of your post.

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.

My point on the company being PM-driven was not that PM-driven on its own is necessarily bad. The point was that the organization responsible for ideas and their execution (in Netflix's case, product management) combined with a culture of fear is a bad thing. It means that ideas are not challenged or questioned to the extent that they should. Apologies for not making that clear ... and no offense to product management as a discipline or career choice.

The problem with Netflix is the problem with a lot of companies: the customers are taken for granted.

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.)

Speaking of weird streaming issues, they recently added a ton of Star Trek content, so I went back to watch Enterprise. About half the episodes in "HD" were 4:3 and the other half were 16:9. I know the show was filmed and broadcast in 16:9 HD, so why the hell did they encode some of the episodes in 4:3?

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.

Ah, looks like they finally fixed The Tudors problem anyway. Good news.

They were just too ambitious is all. Hastings knows that streaming is the future, and he went into startup mode to try to turn his ship in that direction. The two problems are customer expectations and movies studios demands.

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.

Great companies can overcome Marketing mistakes.

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.

It did reverse its decision but it did a lot of damage in the few weeks. First it kind of jolted people into rethinking their DVD subscription and more importantly gave people a reason to look at their competition in streaming. Amazon delivered the killer blow in my opinion. Their kindle bundled with media made Netflix reconsider quickly since now many people will see they are getting a better deal with Amazon even in the streaming realm (even they have no idea what Amazon's content will look like).

If you are getting mocked by the Onion - then yes indeed, there was some damage. :-)


That's from February. Nothing to do with recent events.


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.

That's an urban legend.


(Not the primary focus of the snopes page, but they cover this sweetener change and debunk the myth surrounding it.)

From what I've read, New Coke also had more salt, in an effort to make people more thirsty, and thus drink more Coke.

At my friends today I checked the Netflix streaming catalog on her Roku. I was wondering if they were offering any better content, but nope it's still the same B grade level junk I canceled the service two months ago for.

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.

They have a pretty good catalog of TV shows - Mad Men, Breaking Bad, The Office, etc. Their movie content is pretty poor, but that is mostly the fault of Hollywood executives and their golf buddies at HBO/Time/Warner.

What do you mean not completely their fault? It's not their fault at all. What shows up on Netflix Instant is whatever they can get from the content providers. If the content you wish to see is not on Netflix then blame the creators of the content, not Netflix. I would bet that Netflix would be happy to have every commercially-created video content ever made available on their service.

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.

It's partly their fault. They are trying to maintain this cheap $8 a month flat fee, but that's not enough money in their pockets to secure HBO offerings, a better movie selection and for me a better TV selection.

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.

Wouldn't market questionnaire testing of just 100 people saved them this expensive juggling act?

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.

>Wouldn't market questionnaire testing of just 100 people saved them this expensive juggling act?

Probably would've killed the ipad, too.

The iPad was not revolutionary... it is a giant iPhone with no phone. I would have said I wanted one beforehand, and believe probably 80% of the people who have bought one would have thought it looked awesome. So no, I disagree.

Today's numbers would seemingly contradict your statement about the iPad being revolutionary; http://www.comscore.com/Press_Events/Press_Releases/2011/10/...

No, if I had said the iPad was not successful, perhaps the article would contradict that.

I dunno. Unlike the Qwikster split, the iPad is pretty popular with customers.

I wonder about the potential blowback of hounding problem distributors publicly, though.

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.

One certainly is led to question just how out of touch the decision makers must be when a company makes a move like this and retracts it so soon.

100 customers is not remotely close to a large enough sample size to glean anything worth the hassle to do the test. 100,000 would be better, but then you're spending a huge amount of money for results that might add nothing to your research. The whole "faster horse" theory applies here.

I don't see how "faster horse" theory applies to this experiment. The whole point of the faster horse theory is to look beyond your customer's assumptions to give them what they really want. Netflix wasn't looking to give their customers what they wanted, they were looking to inconvenience customers based upon internal logistics.

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 customer, I'm happy. I loathed the idea of maintaining separate queues, to the point where I started writing a unified queue web app in preparation.

As a developer, I wonder if they're still sticking to their plan to make the API streaming-only? [1] As much as I didn't like the idea of Qwikster, I was hoping it would provide a dependable DVD API.


Netflix, Spotify, Pandora, and pretty much any other digital media streaming service will likely face a problem at some point fighting with content providers about licensing costs.

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.

I'm really surprised by all the mistakes Netflix has been making lately. The mistakes aren't necessarily the direction they are taking the business, but how they are communicating that with their customers.

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.

Wow. How can this get any worse. Netflix management has gone crazy.

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.

I may be the only one who is disappointed by this. My impression (based on the analysis of someone smarter than me) was that Netflix was having trouble beefing up their on-demand selection b/c the studios were trying to put the screws to them based on their total revenues (not just streaming revenues). I was hopeful that with this switch, they'd finally be able to make progress on growing their on-demand catalog again...

The tone on this one is quite a bit different: http://blog.netflix.com/2011/10/dvds-will-be-staying-at-netf...

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)

Why would this move cause you to cancel your service?

I cancelled my service when they announced qwikster.

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.

Disdainful hipster syndrome?

You are right - he could have been a bit more polite and gracious. As it stands, he sounds like a petulant child who has been deined his favorite toy.

All in all, its probably a good move for everyone (shareholders, customers) and even for Hastings, assuming his Steve Jobs delusion has ended.

Something that's totally missing from Netflix's blogpost is any mention of the video games rental they were going to introduce with Qwikster. The NY Times piece only quoted someone saying it may or may not happen, which is disappointing.

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.

For now, they're far enough ahead of any real competition that the flip-flopping won't be too harmful in the short term. They have a great product and they know it.

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.

At the time they back off of that, but I've been noticing of late that the secondary accounts aren't really working in an integrated manner. I used it to split the viewing habits of the kids and adults in my household. That split isn't supported by the streaming. And recently the secondary queues have been experiencing technical difficulties....

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.

Though it should be said that blockbuster is now running ads that criticize quikster's move and the price increase

Yes, but it should also be said that Blockbuster is offering its $10/month streaming service only to Dish Network customers.

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.

Huh, I was one of the few who thought Qwikster was a good idea. I even bought stock a day after the announcement. Now what?

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.

This seems like a perfect example of a company that is too focused on what Wall Street thinks and not being able to deal with the bigger picture and plan for the long term.

I disagree, I think they had a long-term goal in mind without considering the short-term consequences. I'm not a Wall Street guy and I could have told them their stock would tumble immediately. Why? That's easy, if you split off a significant amount of your business to a second company then the company is worth less the exact amount you are splitting off. For example, $200 million company splits off $75 million of its company to a second company. Original company is now worth $125 million instantly. Wall Street does not react well to that unless you can show such exponential growth that you'll make it up in a quarter or two.

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.

That's not true. If company A is worth $200M and you split it, (assuming no other factors liked pissed off investors and/or customers) you'll have company A worth $125M and company B worth $75M. There is no reduction in the value of the companies. Investors get five shares in A and three shares in B for every eight shares they held.

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.

Well, I would say that a value change of $200 million to $125 million is a reduction.

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.

At least they have the nuts to change it back

To me it seems like they are nuts - just wait for the upcoming SNL skits and late night talk shows having a field day with this!


Netflix really doesn't know what it's doing.

As a Netflix customer I applaud their 180 turnaround on their Qwikster plans. It doesn't matter to me if their flip-flop makes them seem a little scatterbrained, because the decision to keep both services bundled together makes the most sense.

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.

Near-universal consensus has it that they didn't know what they were doing when they decided to split off Qwikster.

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.

That was my first reaction too, but this was really a "damned if you do, damned if you don't" situation for Netflix. People were pissed at the change, and changing it back makes Netflix look bad. So, might as well take the option that users prefer.

If they really wanted to hang onto their customers they would bring down the cost of the one segment of their content they DO control--DVD by mail. As others have noted this is their saving grace to plug holes in their streaming lineup, they need to capitalize on it. Hell, give it to streaming customers at cost if they have to.

The mistake Netflix made was adding in streaming to its DVDs-by-mail brand in the first place. Had they launched Qwikster instead of adding Instant to Netflix, Qwikster would almost certainly be a strong brand today, probably the leading streaming movie brand.

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.

When I heard about this, I canceled the DVD service and sent back the 5 dvds that had been on my bookshelf for 3 years. Then I started using the streaming service again, and got frustrated. Silverlight is pretty bad, especially with it's bizarre volume limitations. I realized that Netflix's streaming quality matches it's streaming catalogue, in other words, it sucks, and I canceled.

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!

That $300 stock price was extremely overinflated, especially for a company whose entire well-being rests squarely in the hands of the major media companies.

So just because they are ditching the Qwikster branding and keeping both DVDs and streaming under one umbrella website, do we know that they are not still spinning off the DVD business as an affiliated but largely separate business operation? Seems to me they could achieve most of their perceived advantages of splitting up, while keeping netflix.com as a common storefront portal.

Qwikster was "Lean Startup" methodology in action:

Netflix did not develop anything for Qwikster, but got meaningful feedback [and reconsidered].

> And that price hike is what kicked off the company’s tumble from a peak of $300 a share.

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.

And so Netflix blinks. They are getting desperate. Will the subscriber count increase as a result of this backtracking? My guess is no. There is still the issue of the massive rise in rates, and the overwhelming negative consumer sentiment right now. This must be reflected in the stock price which ended down 5%.

This reminds me of when Gap tried to change their logo; making an unnecessary change that consumers didn't ask for.

It's good they righted their mistake because nobody will be talking about this in 6 months.

For those who thought they would be OK with streaming-only or DVD-only Netflix: Congratulations on your price hike!

You misunderstand. The streaming-only and DVD-only plans still exist. They're just offered on the same webpage.

For Sale: Domain name, never used. (Apologies to EH).

That was more like an abortion.

Netflix made a bad decision, listened to the complaints of their customer base and reversed course on said bad decision. Not sure why that's such a huge ordeal.

Simply because doing some research will have yield the same results without a public embarassment! Netflix is quite a big player in user focus group and testing different scenario before launching new features, but in this case: total FAIL. Netflix constantly do major A/B testing on their web site to see if any minor changes had impact on their users. They even have a conference room for getting user focus group together and watch folks going over some new Netflix features... Looks like none of that experience was used in the Qwikster case.

Netflix is an established public company with experienced professional management. It isn't appropriate for them to thrash around spastically like some kid who's putting up his first web site.

Failing loudly and often is going out of style from overexposure.

That was fast.

Too slow for me though, I'd already cancelled my "Qwikster".

Reed made a $100MM shorting the stock via a proxy and will make another $50MM+ as it rebounds. This in fact was the only way to save the company.

IF it doesn't make sense, it is a conspiracy by default.

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