Netflix: How to completely screw up

Doing a Coke

That is all.

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.

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.

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.

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.

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!

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?

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.

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?

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.

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.

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?

"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.

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.

"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.

The master plan

1 Rent/stream moves

2 Split core businesses

3 Hike prices

4 Alienate customers

5 ??????????

6 PROFIT!

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?

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...

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).

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

This business tactic smacks of such colossal imbecility, that one suspects a conspiracy theory involving WarnerBros secretly buying the company in order to dismantle it.. um or something.. anything?

The plan's pretty simple

when the physical media side finally inevitably dies, it won't take the mothership down with it.

Whether of not this actually works remains to be seen...

I didn't care about the price hike until now.

I wasn't gonna care about this, I didn't care about the price hike until now.

Now that this guys came out and said all this, I'm gonna cancel.

I couldn't care less if they don't include DVDs by post - it is only the streaming option I would want. We had this for a month while in the US and it really was awesome.

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.

I was not a Netflix customer until after the price change.

I get my DVDs by mail from Blockbuster and am not interested in leaving. Hopefully they will stay around. I am not interested in their streaming service. When Netflix changed the pricing, I took advantage of their one month free offer on the ps3. It's not perfect, I find it useful enough to continue.

No mention of the massive price hike that the movie industry has put on Netflix? The Starz deal wanted to increase their take from 30 million to 300 million, which won't be renewed. That's quite a bit more than the 60% rate hike. Other content prodivers are pulling the same crap.

Why is it Netflix's fault that they're not selling their product at a loss now?

I certainly do look forward to the Netflix aspects of my TV or game console being useless, after the fickle Internet whinges them into obscurity.

Netflix Streaming

Unless you're a child or love Anime, or kids shows Netflix streaming a huge waste of money! There is next to nothing for online viewing newer than 3 years old or something that lived in a theater for about 2 days before it was pulled. Unless Netflix gets it's Streaming Service updated with ALL its titles its gonna lose HUGE!

Horses for courses

The quality of Netflix streaming on a decent broadband connection is quite good, not withstanding some codec artifacts, especially in dark scenes. So, I liked having the Blueray option for those times when I really wanted the best quality.

But the new price plan killed that option for me, especially since the streaming catalog growth seems to be slowing noticeably and Netflix lost the Starz contract.

So, now getting less for much more, I dumped them.

I just hope that my premium account on Spotify doesn't suffer the same fate.

No idea is so clever or so well implemented that it cannot be destroyed by some prat in a boardroom.

(required troll comment)

I though they were going to name the DVD by mail service "redbox"...

dvd by email

I wonder how big those attachments are?

Gee, lets run independent copies of our DVD and down-loadable movie databases. THAT will increase business!

Shouldn't come as a surprise that corporate america hangs itself with it's own fabric. These companies have people paid a salary to brainstorm and heres the result of that.

Where I live the redbox store units are very popular and while they don't offer such a vast selection of titles they do offer instant gratification.

The streaming of digital media will face future problems as network operators are going to refuse and throttle the traffic without additional payments.

Average nice HD movie is usually around at least 1gb to download. Just imagine having your household wired to all internet television. Comcast and others have done this yet the one thing that's never much figured in is how much it's going to cost. Unless they have unlimited plans for this comcast only gives you 250gb a month of traffic.

When your downloading titles and also streaming all your daily life on the internet you'll hit those data caps real quick and someones going to pay for it.

I still have t-mobile trying to nickle and dime me for text messages I never authorized. This is the corporate mentality. Screw the consumer until the consumer goes somewhere else and then either merge with another company or go under.

Netflix was doomed one way or another; they simply accelerated it.

Netflix Streaming Service Selection Sucks

I had a Netflix 3 disk subscription forever, went to a 1 disk subscription, went to streaming only, and this article reminded me to cancel Netflix completely -- which I have just done.

When I first started using streaming it was very new and the selection sucked. I figured that the selection would get better over time, and I was wrong -- it seems to have actually gotten worse over time. Older catalog selections are dropping off and few new selections are being added. I no longer see the value in a Netlix subscription.

Monopoly

It sounds like NetFlex is just flexing its monopoly muscles.

Selling it off?

I suspect they've done this with the thinking that it's easier to sell off the ailing DVD side of your business if it's a physically seperate business.

Of course, they should have considered that when they first set up shop.

Perhaps that's one of the distinctions between 'having a good idea' and actually being 'visionary'.

This sums it up quite nicely

http://theoatmeal.com/comics/netflix

BUY OUT redux

Rather than a flat buyout in order to then shut them down, Hollywood somehow sweet talked the CEO into this with some pie in the sky future where Netflix will make it big. But that is just a bunch of hype to hook the sucker. Netflix could have been a serious threat to Hollywoods current way of doing bidness, but a big plus for consumers.

They should offer Stream to Watch + buy DVD/BD physical Disk.

lovefilm

I reckon Lovefilm/Amazon must be attempting the same end - meltdown - using different tactics.

Their online selection has been pathetic for a while now, but it seems that their selection of DVDs is not being updated as you'd expect. Instead of seeing options to "pre-order" a title, you're offered the option to buy on Amazon.

I don't want to buy! I'm happy waiting a REASONABLE amount of time, then renting.

Why would I want to buy more films? I've already got a bunch sitting on a shelf gathering dust, not being watched. That's why I rent.

so...

Let this be a warning to you... if you want to do something painful to your customers or constituents, boil the frog slowly, not all at once, or they'll jump out of the pot!

New wedge

The fact that ratings and queues will not be integrated between the two sites will sharply drive a new wedge in.

Already I'm seeing most of my friends abandon the netflix website to use Instantwatcher.com or a dedicated app like netflix freak. These sites and apps provide much more functionality than the netflix site itself. Now there's a chance for new features- automatic queue balancing and ratings synchronization.

For those who want both services, I predict that more of them will switch to using an API or third party website. I don't know if netflix cares about people dodging their site, but I'm sure it will cut them out of some feedback loop.

The problem...

...isn't JUST that they raised the price on 1 DVD+streaming by 60%, but that they are now completely separate subscriptions in every possible way. I had the DVD+streaming, but $15/mo for 1 DVD-at-a-time and occasional streaming viewing was way overpriced, especially since the streaming selection was poor, and is even worse now. So I went to 2-DVD for a slight price increase and dropped the streaming. But the worst part is, even if I kept my old plan with the price increase, I couldn't even search the two at the same time. I'd have to go to two SEPARATE websites to search two SEPARATE catalogs. Haven't two SEPARATE bills also means more work for me. Sure, these are major things, but when you compare to the fact that I was getting the same thing previously, in a much more convenient setup, it doesn't exactly leave me with a good taste in my mouth.

So, good going Netflix. I like how I woke up Monday morning thinking I just changed to a different Netflix plan, but in reality ended up canceling my Netflix subscription and starting a new "Qwikster" subscription. I'll just wait and see who buys Qwikster, since it's obvious that's what's going to happen...

er....

I don't want to be the dog in the manger here but....

- Netflix' (s?) business model going forwards has the *potential* to be fantastic, but it could fall flat on its face, being so dependent on the bandwidth and download caps available to consumers. In Canada, for example, it has had to degrade the quality of films in order to fit within the ISPs derisory download caps per month (typically 1-5GB); if/ when ISPs get fed up of bearing the brunt of the traffic charges again, Netflix could well suffer from 'traffic shaping'.

- Yes, there is a master strategy: stop sending people DVDs and move them to online-only packages. In theory it results in much lower overheads and hence bigger profit. It's not rocket science, it's just that they completely forgot what it's like to be a consumer.

I was expecting a more detailed analysis of what this means for the industry, next steps etc, but I don't really see the substance of this piece. Sorry.

A business school case study in the making

I don't see how this will end well for Netflix. It's fun to watch though: two Coke Zero moments in less than a year. MBA students will enjoy ripping this one apart in 10 years. They'll learn how an idiot CEO with no stock in the company managed to squander a decade of unbelievable goodwill with a one-two punch to his loyal customers' nuts. Reed can take his place in the hall of shame alongside Gerald Ratner.

In my house use both streaming and DVD. They complement each other nicely. Do their figures really suggest that we are in a minority? It's how everyone I know uses Netflix. The shitty streaming library practically forces it.

Up until my bill (first post-hike payment today, and it hurts), the only annoyance I had was Silverlight: we use a Mac Mini as an HTPC and f'ing Silverlight updates once a week with a stupid dialog box that pops up only when you hit play, instead of a polite background auto updater like every other program in the world. But I blamed Microsoft's cluelessness for that, not Netflix.

Now they're separating the companies. No integration, no single queue to manage, not even a promise they're going to add this. Two accounts to maintain. Two streams of emailed spam. Two sets of customer service. Two more opportunities for some cracker to steal my credit card details, and the worst company name I've heard since the first dot com boom.

Had they announced this by saying, "We've put all our DVDs on Instant Watch! The library is huge! But, if you still want DVDs, you have to get them from our sister company," then I think people would understand. As it is though, they've cocked it completely.

Read my take on the Netflix debacle, Spielberg's redemption, changes to Star Wars and more: http://filmsnork.blogspot.com/2011/09/netfed-can-online-dvd-rental-company.html

Also follow me on Twitter @filmsnork

Guys..

... you are missing the point. The reason Netflix‘s prices were so low was because of Hollywood being scared about BitTorrent. They figured out its better to rent their movies ar prices unheard of before, rather than not rent it at all because everyone is downloading it for free (btw they still made a profit from). Now that Hollywood is hoping to curb bittorrent with the PROTECT IP act, they are showing their real face (high rip-off prices are back).

What I really dont understand is people who buy or rent stuff in weird formats like itunes and UMD. Since when the public fell for the trap of buying the same movie over and over again? Just give me the DVD or Bluray, and i will convert it in the proper format for my cellphone, my PMP and PSP. And this is if a feel generous, and dont download it in DRM-free format for nothing from torrent. Com on guys, so them that PROTECT IP is useless and that if they want to reduce bittorrent downloads, they ‘ve got to be reasnable with their pricing.

Great . . .

Now for the same service (streaming and DVD mail) I have to deal with TWO companies instead of one. Would have made more sense to keep it all under NetFlix and have a bundle price for both DVD mail and streaming and price for individual services.

Fortunately, I didn't purchase the Roku player I was looking at a few weeks back. I think I will pass now. RebBox here I come . . .

The answer is obvious

I'm amazed that nobody is seeing this... it's clear that Netflix is setting up for an acquisition/merger by/with a major player; I'd guess Microsoft, Google, or Amazon. The company that's planning to acquire doesn't want to be burdened with the overhead of physical media distribution.

why so complicated.

just offer a number of plans

- streaming only

- dvd only

- blueray only.

and then have the permutated bundles

stream + dvd

stream + dvd + bluray

dvd + bluray

stream + bluray

depending on what 'bits' are on you can browse a selection form the catalog.

no renaming needed, no splitting of the company , no splitting of the database.

it;s just option bits in the filter and the billing.

Brilliant no ?

So why didn't they do it ? i smell a rat.... like a shareholder rat.... netflix is the usps's largest customer. This shipping cost weighs on their net profit margin. By splitting off they can now claim 'netflix i xyz profitable' ,, quickster ' less'.. instant shareholder bonus .... and quickster will die in a few years as the entire media landscape is changing with the advent of web connected TV's and tablets with streaming capabilities..... the shine silver diks are going the way of vinyl... remeber the scen in BTTF2 where they had all the laserdiks wrapped up ready to throw in the mrFusion.... ( right about when marty gets his Nike shoes from the doc ... ) It ain't that far off you know.. 2015 ...

Why not use the App Store model

Lots of angst about making deals with studios and how much it's costing Netflix and using this as an excuse for their s*** streaming selection.

Why not simply offer the studios a certain fixed amount of money per hour of content viewed, like Apple offers a fixed amount per song, and see what happens.

The studios are making next-to-nothing for most of their back catalogs. It seems like they would quickly realize that they want to get something for their content vs. nothing.

Netflix could then balance the prices so the studios get paid and customers still only have to pay a flat rate, which is nice.

improvement?

"It's potentially a huge, and positive change in the way we get stuff."

er, is it?

well, I mean, I guess, in theory. But it's the music and movie industries we're talking about, here. they'll find a way to stuff it up.

much like the software industry, who will happily tell you you paid for a license when it suits them ("stop selling that second hand copy, we only sold you a license!") then turn around the next second and tell you they sold you a physical copy if the circumstance is different ("you want a replacement disc? what did you do with the one we sold you?")

Interestingly, the down side is right there in the sidebar, in the story about the New New Edition of Star Wars. At least there are still original copies of the original cuts of the movies out there, on film, on video tapes, which people other than George Lucas indisputably own. He can stop publishing new copies of 'em, but he can't take away the old ones.

What if we all streamed everything and it was all perfectly DRMed? The New New Star Wars would be all you got. No-one would have a copy of the original. After a few decades - just as Lucas wants - few people would even remember (or, perhaps, believe) that Han shot first...