Netflix's Woes, Continued

In the wake of Netflix's pricing increase, it's been estimated that they've lost somewhere around 1 million customers. On Sunday night, Netflix CEO Reed Hastings attempted to explain the move. He starts off the announcement by saying "I messed up. I owe everyone an explanation."

He then proceeded to explain how he would make up for everything... by totally screwing over customers even more.

Essentially, Netflix is splitting into two independent entities (both owned by the same parent, for now). One is the DVD by mail service, which will work the same as ever, but which will not be named Qwikster. The other is the streaming service, which will retain the Netflix name. I see no reason to do this, but whatever. Maybe it's an accounting thing. But then Hasting drops the bombshell: "Qwikster.com and Netflix.com websites will not be integrated." Um, what? All the sudden, this whole thing went from baffling to insane. The ratings you give movies on Netflix won't be reflected on Qwikster (and vice versa), if you want to change address or credit card info, you have to do so on both sites, and you presumably won't be able to tell if a movie is available on streaming when looking at the Qwikster website.

Now look, I'm not a Netflix hater. I love the service and even with the price increase, it's a great value. I remember the old days of Blockbuster and do not want to return. I even defended their price increase back in July, essentially calling all the controversy an infantile response to Netflix's reasonable reaction to unreasonable studio demands. If the studios charge 10-100 times as much for Netflix to stream movies, it's only natural that the price would increase.

But this new change is utterly ridiculous. What's more, it seems to make no sense whatsoever. I'm not an expert in business practices, but I can't find a single compelling reason to make this change at all. There isn't a single operational benefit to the switch and there's now a massive usability hurdle placed in front of the customer. I suppose there could be some sort of internal accounting or business or stock reason to make this change, but even that doesn't make sense. In July, their stock was nipping at $300 a share. Now? It's at around $130 a share. How does this benefit them? My guess is that the stock will rebound a bit, but that they'll continue to bleed subscribers. The only thing I can think of is that Netflix really does want to just sell off the DVD business and focus on streaming. Depressing the stock prices the way they have means that maybe potential investors will see it as a more attractive investment or something. I don't understand why that would be a viable option, but it's the only thing I can think of...

For the first time since subscribing to Netflix over 6 years ago, I'm looking into alternatives. I will most likely keep their streaming service, but the way they're setting up the DVD service seems to beg customers to look for alternatives. Before the split, Netflix was a unique value proposition. You had access to nearly every movie available on DVD. The streaming selection was limited but growing, and you could always fall back on DVDs if needed. Now? There's no compelling reason to use either of Netflix's services. The only thing that could save this would be if Netflix actually expanded their streaming selection significantly, something I don't see happening anytime soon. And if they keep bleeding customers the way they are, their position at the bargaining table will only get worse as time goes on.

Streaming may be the future of video content, but there's a fairly significant chicken-and-egg problem that needs to be solved first. In order to get favorable deals with the studios, the streaming service must boast a very large number of subscribers. In order to get those subscribers, a streaming service must boast a very large selection. Again, I don't see how this move helps Netflix in any way.

In the end, I'm flabbergasted. I just cannot comprehend what is going on right now. Netflix was great while it lasted. It's a shame it's going away.