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back to article Netflix: How to completely screw up

As recently as June, Netflix looked like one of the biggest consumer success stories in digital media. The company was already synonymous with DVDs-by-email, an idea imitated worldwide, and was bundling on-demand TV and movie streaming at an incredibly low price. By May, Netflix traffic had overtaken Bittorrent volumes in the …

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Netflix want to dump dvd rentals and go streaming only it's so obvious. It costs them far less to stream than mail a dvd out.

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aye

but it costs them far more to lose customers. It would have been more sensible to add a dollar or two onto the DVD option.

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And the online catalog sucks compared

to the mailing catalog. I signed up because I thought I'd use that and erase some shows my roomie has permanently stored on the DVD even though she doesn't often watch them. During the time I've been using it, they've pulled 2 series I was in the middle of watching. The other night I discovered a third has maybe a quarter of the episodes online, and the rest are DVD only.

The price hike may be bad enough, the two businesses part is even worse. Adding an option to put a DVD on your mail list from the tv would be the more intelligent option.

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Linux

Reality tells a different tale

> Netflix want to dump dvd rentals and

> go streaming only it's so obvious. It

> costs them far less to stream than mail

> a dvd out.

If that is really the case then why did they just part company with Starz over price?

It may cost more to push shiny disks around but at least I can buy them at the local Tesco. I can buy exactly the amount I need and I don't have to worry about Big Content suddenly deciding to jack the price back up to $90 per movie

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Problem I have with Netflix...

Is it's reliance on Silverlight. This makes it absolutely useless on the systems I use all day and night. By flagrantly ignoring all licensing I can get it to limp along in a VirtualBox but it's quite an ugly hack. Apparently, even for Windows users, the Silverlight player is not as good as the player they used previously.

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Easy fix

Use a PS3 or a Wii as your client for a Silverlight-free experience :)

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Anonymous Coward

Sky use the same crap.

On my old dual core laptop I can play stuff from BBC IPlayer with hardly any trouble, it only uses about 20-30% CPU and with my ADSL almost never pauses for data.

Sky us that silverlight garbage, its slow, uses ~98-100% CPU and constantly stops because it could not download the data stream and play it at the same time. Then to top it off the quality on the Sky system is at best equal to the low quality on BBC.

The only reason I allowed silverlight on the system was to try accessing Sky on damand, but it's just not worth it as the system is so awful.

And they wonder why people are tempted to just download the programs.

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98% cpu usage with low quality streaming? And they said Silverlight would never compete with flash!

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@Use a PS3

Sure...

Each time there is the slightest change to the PS3's OS ... you have to have to download & install it.

Each time Sony adds another screw to its terms of service, Netflix insists you go along for the ride.

Of course there is no such thing as a PSN outage...

And after doing that mandatory update yesterday, no Netflix on PS3 anymore.

For now I dislike Sony more than Netflix but that might change and I resent being hostage to both their goofs.

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Anonymous Coward

EPIC FAIL!

It's all going to hell, we've upset all our customers, what can we do, fix the problem?

No, let's rename part of our core business, that'll fix it!

Seriously, is Catbert running the company?

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Another Netflix Customer Service Fail

One thing the article fails to mention is that Qwikster will at some point in the future carry games for rent too. This may tip the model slightly if the additional cost is $1 (as Blu-Ray rental currently is). This might attract those who have other services eg GameFly to cancel that account and keep the DVD option on Qwikster.

Netflix used to be pretty good value. Now splitting it up and charging more leaves a bad taste in the mouth if the status quo of content remains. Some of the newer TV series are available on DVD but 4 months after the DVD release you still can't get it on Streaming. New movies likewise lag on streaming over DVDs.

Also, grovelling emails don't placate the masses of people annoyed with apparent huge price hikes.

In the end if this delivers better content people will stay, if not expect lots of Netflop jokes.

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So basically

DIVX all over again? Kinda sounds that way, although I wonder -- this is an Orlowski article, and I would think he if anyone would be all over that if there were even the slightest hint of it actually happening.

Awesome that Netflix is going to become an enormous pain in the ass to use, though. Back to Bittorrent!

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bittorrent?

ok then.

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Emotion trumps logic

Many of us saw this backlash coming as soon as the announcement was made. Netflix' reasoning was that by splitting the business into 'mostly DVD' and 'mostly streaming' they would simplify things and actually save the bulk of their customers some money. This line was trotted out repeatedly by Netflix and by industry pundits, not least by a certain Mr. Laporte whose sponsored podcasts could barely be heard for a couple of weeks over the sound of his frantic back-pedalling.

The thing is, logically Netflix are right. If a customer spends most of their time watching streaming movies and only rents the occasional physical DVD, they're probably better off going for the streaming-only option and popping down to the local DVD shop for the odd disc. Likewise, a traditional disc renter who never streams will save a couple of bucks a month by not taking that option. If the figures are to be believed, the bulk of Netflix' customers do fall into one of these two categories.

The problem is that customers aren't neat little rows of numbers on a spreadsheet. They're human, and human emotion nearly always trumps human reason. If you've been charging someone $x for a service, then suddenly expect them to pay $1.6x for the same thing, they'll react as though they're being taken.

Even if you can prove that they didn't need the full service anyway, or that better options exist, it's difficult to overcome that emotional response. It's a bit like dropping someone's phone package from 1000 inclusive texts to 500 even if that person never used more than 50. In terms of what they pay against what they use, nothing has changed. But that won't stop them feeling ripped off.

I'm really surprised Netflix couldn't see this.

Surely there were solutions? When eMusic were forced to increase their prices for UK customers to meet tax requirements, as a good will gesture they created a special legacy price to maintain the same cost for those customers who'd signed up under the US system. Had Netflix done something similar with their existing subscribers when they split the business, maybe the reaction wouldn't have been so negative.

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The problem isn't that it's better for business...

The problem is that it's a surprise. Even the much-hated cell providers have a grandfather clause to let customers who have an old plan stay on the old plan until they want to upgrade. That would have been a much better plan - tell all the existing customers, "Hey, you get to keep your Streaming+DVD package, but only until you change plans" - and new plans would have some gimmick or other (like a family plan, or a new player, or whatever). That will force anyone that wants new stuff to change to a new plan, and after some time (say, 5 years), old customers will slowly lose functionality and will be forced to switch... but over the course of years, not weeks.

Yes, splitting off the mail-order stuff from the streaming stuff may be a good idea, eventually, but right now, they've managed to hurt themselves pretty bad. Last estimate I say was that they're expecting to lose 4% of their customers overall - that minus four percent growth. If slow growth is bad, then flat-lining growth is worse, and losing customers is viewed as the beginning of the end. It just wasn't a good move, at all.

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Popping down to the local DVD shop...

There are no more local DVD shops - Netflix put them out of business.

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Anonymous Coward

Availability and quality

1) Not all films are available to stream

2) We can't stream at BluRay quality

That's why having both together makes so much sense.

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The problem is they are wrong as are you.

I stream regularly and I use the mail option regularly. Once a week on average, which is what I signed up for. To the extent I cut back on my streaming, it is because the service failed me, not because I wasn't up for streaming. Oh, and I'm streaming to the wifi enabled blueray player attached to the tv, not to the pc. So I'm exactly their target audience - not playing the geek on the streaming stuff.

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Linux

The store was replaced

The store was replaced by a vending machine. The things are all over the place. I think I have 10 of them within easy walking distance of the house and I live in the outer suburbs.

Netflix may have killed off Blockbuster & Hollywood but RedBox rose in it's place.

That's the nice thing about capitalism. Cockroaches and vultures rise out of the ashes and decaying corpses of other companies. Someone else always wants to make a buck.

All of these shenangians have made me take a closer look at Redbox.

Awakening the sleeper is always a dangerous proposition. Usually doesn't go the way you think it will.

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Anonymous Coward

Redbox is fine for recent movies but I also use Netflix to get more esoteric content--movies from the 70s, 60s, and sometimes older, sometimes foreign-language movies, sometimes discs of TV shows that are on cable channels that I don't get, etc.

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Anonymous Coward

Some users rely primarily on DVDs, some on streaming. My knee-jerk reaction is that, yes, it makes some sense to separate out the services.

But, thinking about it more, if users are already only primarily relying on one or the other, aren't they already, in effect, separated? What's the point of explicitly separating them, other than to generate ill will among your user base?!?!

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We actually did the math for dropping the DVD service when this was first announced. Our DVD queue is 20ish long so we turn the DVDs around just as fast as they can get them to us, usually watching them that night and getting them back in the mail the next day. Except in Feburary it's still cheaper for us to go with Netflix than to rent as often from RedBox. As for the streaming, we use that constantly. It's literally the only way TV shows come into our house since we have neither cable nor a decent antenna.

Silverlight's a fail though. They need to go back to Flash. I stream to my game consoles, but still there has to be a better option than Silverlight.

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Linux

Esoteric Things

The local rental store was never good for esoterica. That was one of the early strengths of Netflix. Since it serviced a wider audience, it was able to provide all of those old and oddball things that you would never find in your local Blockbuster.

Most of that esoterica is still not available for streaming.

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The master plan

1 Rent/stream moves

2 Split core businesses

3 Hike prices

4 Alienate customers

5 ??????????

6 PROFIT!

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Anonymous Coward

I don't have an answer...

... but of course I'll happily speculate.

I recall reading about shipping and royalties getting a hike making netflix passing this on to its customers "inevitable"*, but even so taking this as a given for the sake of argument, that leaves clumsy handling. They seemed to be doing a couple things pretty neatly, like the search for a better reccommendations algorithm competition. So is this simple foot-in-mouth or is there some thinking down a garden path we've missed? Both in concert is also easily possible, even probable taking into account the possible hidden agendas of the ultraviolet crowd that they're a member of--as I'd speculated on earlier**.

Testing the waters perhaps? Still a risky proposition to squander their market position with, though it might be worth looking into reasons why they might feel trying worth a shot anyway even without possible-but-unlikely uv party kickbacks. Certainly sony could make it worth their while, but do they have a reason to "expend" a party like netflix?

This verges on if not already is tin foil lined coat and hat territory, but I can't express that so I won't.

* There's a july slashdot posting pointing to a blog without backing or numbers or anything.

** http://forums.theregister.co.uk/post/1080275 (back when the AC hate only just started).

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I wonder whose fault it is...

Did Netflix screw up or were they forced to do so by the studios? After all, they'd been making grumbling noises towards Netflix for a while, if I remember correctly what I read a while ago. Might not be true anyway. But it wouldn't surprise me if the studios, wanting more money, had somehow forced this to happen.

Anyway, related to that, Netflix just started operating in Brazil, and I read the reviews from my favorite local newspaper. It sucks balls, and it might not be Netflix's fault in that case, I think. The reviewers say it's technically great, gets smooth, good DVD-quality image even with the somewhat flaky "broadband" there. But the selection of movies is horrible. As examples, they gave the following: search for movies by Spielberg. Neither "E.T." nor "Raiders of the Lost Ark" will be there. Now, doesn't that smell like the crazy licensing scam that the "content creators" like to impose on free international trade?

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Not that bad though.

Mexico also got Netflix last Monday. While their initial catalog did suck donkey balls, it seems to be getting decent additions daily. Where they are full of fail is on languages; some movies have only Spanish dub (ugh!), others have weird choices like English audio with FORCED Brazilian Portuguese subs (huh? Mexico doesn't even speak Portuguese!) So they really have to fix stuff like that. Oh, HD works on my 3Mbps DSL, and the Latin American Netflix service has no DVD rental stuff. Maybe the LatAm subscribers will offset the US defectors?

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Anonymous Coward

A grovelling apology, we had no humility...

....and the trend continues. I received a novelette-sized letter from Netflix in my inbox today, and among explaining why they screwed everything up, they never once offered to put prices back anywhere near what they were, perhaps making it more like a 20% price hike rather than 60%. Perhaps he could also have explained why the price hike was necessary.

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Couldn't they...

...simply continue with the DVD operation in the background and let it slowly wither away until it was no longer profitable, at which point they close it?

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L.B

Don't bring reasoned well thought out arguments in now.

These CEO's and Co "earning" their mege-bucks know everything, and are never wrong. It's obviously just our perception of reality thats wrong.

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Your hypothesis contain the unproven assumption

that the dvd operation is or ever will become unprofitable.

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Yet another tale of corporate genius...

Here is a tale of yet another US corporation that had something innovative, and with that rose to the top, then lacked the wherewithal to maintain this dominance. instead insisting on a path of greed, they self destruct.

R.I.P. Netflix, right along side Yahoo and AOL as internet has beens.

Good Bye...

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"I shot myself in the foot. It didn't hurt enough, so I reloaded and shot off my whole leg."

Seriously though, what in the WORLD were they thinking? "Hey, I've got a great show dog, but the back half is red-ribbon quality and the front half is blue-ribbon quality. So, I chopped it in half! Aren't I brilliant?"

Q-whatever-it-was doesn't even have the Netflix brand to back it up; it's effectively a new competitor, going up against Amazon, Apple, Blockbuster (are they still around?), and even Netflix itself. Brilliant, that is - they've set up a company that directly competes with itself.

Sigh... I'm just glad I haven't jumped on that bandwagon. I almost did, but with stupid stuff like this, it's just not going to happen. I'll wait for UltraViolet. Or whatever comes after that.

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Why?

Why would I keep a 40Mbps video codec with lossless HD sound Blu-ray that I have paid for in a cupboard, but rather stream a 5Mbps "HD" version with DD 5.1 instead?

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Re: Why?

Easy one. A BD played on a decent big telly and surround system looks and sounds superior to seeing and hearing the movie in your local fleapit these days.

Holywood makes a shitload of money out of the cinema business.

Moving to streaming rather than discs makes people go to the cinema for the "superior" experience.

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No, you didn't miss anything

Netflix, or rather Netflix management, has finally jumped the shark.

Back when they announced it the price hike actually made sense to me. The streaming service was a significant value-add to the proven basic disc-by-mail service.

*Because it was a bundle*

I wanted Netflix to survive because they provided me with *choice*, something almost no one else did.

*Because it was a bundle*

The strategy would let Netflix not only survive, but also thrive enough financially to continue growing.

*Because it was a bundle*

Many businesses have learned the hard way how important it is to diversify, to be invested in multiple channels so that when lean times come in one, steady business from the other can carry them. It looked like Netflix actually understood this.

*Because it was a bundle*

I clearly misread what was really going on inside the Netflix boardroom.

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Handled in the *worst* way possible

They really screwed the pooch on this one; a perfect example of the "frog in the pot" scenario. If they had raised the prices on existing customers over the course of the next few years, then people would have begrudgingly accepted it. Now maybe their business model doesn't quite work that way, but I doubt a million lost subscribers is helping the bottom line either.

The icing on this fail cake was added on Sunday when they sent a condescending "We're so sorry you weren't happy with us increasing our prices, but we're not backing down so thanks for your business or piss off" letter.

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Anonymous Coward

DVDs-by-email?

You can do that? I'd been thinking they might be trying to divest themselves of the DVD portion of the business due to the greater overheard cost of shipping physical disks all over the place, but apparently I misunderstood the business model.

Perhaps they secretly hate DVDs as much as I do and just don't want to handle them at all.

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Of course by email!

They just send the 8GiB .iso file in 20MiB chunks, like the old days and the .binary newsgroups.

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Doing a Coke

That is all.

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Anonymous Coward

@King Jack

Or doing a Nokia.

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Anonymous Coward

I read your comment as "Doing Coke" and it made complete sense :)

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"Is there some masterplan here we've missed?"

Possibly, but it better be one hell of a plan. The customer base is pissed, and the decision to split into two separate companies, in one stroke massively inconveniencing existing customers and eroding a pioneering and highly successful brand, simply boggles the mind. I suspect Netflix is bound to end up as someone else's subsidiary.

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What would you like to watch again?

It's studios, not the price hike that killed Netflix. Netflix's selection of new streaming releases has gone from slim to almost none this year. Browse the new release section on their home page to see how bad it is. The price hike for disc renters only concentrated an exodus that was inevitable. I never rented discs but I left for lack of there being anything new to watch.

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To go all at once, or slowly bleed out?

It's simple really, and the fact so many people are up in arms about it mystifies me.

The management and board of Netflix took a look at the next two to three years and realized that the business wasn't going to be sustainable. Everything from postage rates, to disc acquisition, streaming, storage, and of course digital content acquisition. It's all going up. They had to come up with a new plan.

The plan they decided on (With access to way more information than us side-liners have, it must be noted) was to separate the streaming and physical sides of the business and price them according to their near-term realistic cost structures.

They knew this wasn't going to be popular, and the needed price hikes most certainly wouldn't be so they had a decision to make, either change it all at once - rip off the band-aid so to say, or bleed it over the period of a year or so. First new customers, then multi-dvd, then single dvd subs.

It's pretty obvious to both us and them that the price hikes would cause a reasonable drop in subscribers. Hopefully that would be counteracted by new subscribers, but nonetheless everyone had to know that it would happen.

It's important to stop for a moment and make one fact clear: at this moment Netflix has no valid, legal, competitor. While that may (and hopefully will) change over the next few years, the reality is that right now Netflix stands alone.

That last bit is important because if Netflix goes for the bleed out now, they run the risk of having a competitor for people to switch to later, whereas right now it's more or less an all-or-nothing approach.

Additionally, by finally doing it all at once they all but guaranteed any serious competitor will come in at the now-standard pricing (or even higher), and when doing deals the content owners will be expecting payments based on that cost structure.

Finally, after seeing just how severe the backlash was (more so than they anticipated would be my guess) they decided to go ahead and finish the plan, separate the businesses and start re-building.

They are neither short-sighted or stupid. It's a reasonable plan on their part and hopefully one which will work out well for them long term, albeit with a short term cost.

The pricing is still beyond fair, the selection is reasonable for the price, and they now can spend more time working on streaming content acquisition than physical aquisition.

Karl P

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Anonymous Coward

"Netflix has no valid, legal, competitor"

So LoveFilm.com does not exist then; as it's owned by Amazon I would have thought it was available in the US as well and the UK.

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Bollocks.

I joined just about the time they made the changes and I joined FOR the streaming. Turns out the DVDs are the better part of the bargain. There were plenty of competitors listed on the blueray device. I just picked Netflix because of name recognition.

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Live in L.A.

If you're in Los Angeles then streaming looks like a great plan, but if you live in Mississippi or any other rural part of the USA then you've got a drive to Blockbuster.

The basic problem with streaming video is that it takes a relatively fat pipe - 15kbs down a phone wire isn't an option if you want to watch the movie this month. There are very large areas of the USA where the only internet option is a phone modem over 5+ miles of wire strung on the utility poles ... speeds of up to 28kbs are possible so long as it does rain and nobody shoots at the insulators on the phone wires. Other than some minor tweaking, broadband speeds have remained virtually unchanged in the US for the past 6+ years and there's no real incentive for the providers to do much about it.

In other words, streaming is running full speed towards a brick wall.

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Well that and the ISP's like AT&T swapped to capped internet from unlimited kinda put some people off of streaming. I know I forbid anyone in the house to use netflix cause without it we are hitting damn near the cap monthly where before they imposed it, and the house used netflix a lot I was like 30 gigs over the now in place cap.

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Don't forget..

Thanks to the scare campaign against "Net Neutrality" advertised by the cable companies and the telcos; they can throttle their current bandwidth from now until the end of time, and won't ever have to upgrade their pipes.

Funny thing about it was that it was the good ol' boys shouting "Keep you gov'ment hands off my internets!" that took the power away from the FCC to enforce fair traffic handling and handed over the keys to the big corporations to do as they please. The good 'ol boys that live 5 miles outside of town.

Enjoy your 28.8kbps service from your choice of any of the one providers, you wanted it.

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