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Like a lot of people, I am perplexed by Netflix splitting its home-delivery service from its online service:

Which raises the question: What is Reed Hastings smoking? As far as anyone can tell, he seems to have rolled up pages from The Innovator’s Dilemma, Clayton Christensen’s influential 1997 book about the ways that successful companies die at the hands of upstarts. Christensen, a professor at Harvard Business School, coined the term “disruptive technology,” which describes innovations that come out of nowhere to undercut a market leader’s dominant position. Christensen cited the way that Digital Equipment, the leader in 1970s-era corporate minicomputers, completely missed the 1980s boom in personal computers. But a better example may be Netflix itself—its all-you-can-eat business model disrupted, and eventually killed, the previously dominant Blockbuster model for movie rentals. Hastings is likely paranoid, then, that Netflix is vulnerable to the same kind of disruption. And that’s the logic behind the mail/streaming separation. Hastings would prefer to kill his own golden goose before anyone else beats him to it.

I think it’s an idiotic strategy. Most of Netflix’s customers subscribe to both DVDs and streaming, and if they’re like me, they like the service because it enables both not-so-picky instant gratification and well-considered delayed gratification. I use the DVD service to select movies that I really want to watch and am willing to wait for; I use the streaming service when I want to watch something—and pretty much anything—right now. I can keep doing this after the DVD plan is renamed Qwikster, but it will require more work. If I search for a movie on Qwikster, it won’t tell me that the movie can be seen for free, right now, on Netflix. If I search for a movie on Netflix and don’t find it, it won’t let me add it to my DVD queue.

It seems likely that the ultimate goal is for Netflix to sell off its home delivery service and commit fully to online. And I’m no capitalist, so what do I know? But this seems like a very bad idea. I am very bearish on the viability of streaming film online over the long haul. Netflix had to raise prices recently without any improvement in service in order to raise money to continue buying online content. It then went out and lost access to Starz, its biggest supplier. As distribution companies and studios demand higher prices for streaming, Netflix and other providers are going to have to continue raising prices to the point that I’m not sure who will pay it. Even if the prices don’t rise that high, I still can’t get more than 20% of my Netflix queue online. Something has to give here.

But what I really don’t understand is splitting the two services. I use both, but I use the home delivery far more. I suspect a lot of people use one far more than the other. Won’t this convince people to cancel either the home delivery or the online? If I am receiving 2 charges on my bill, can’t integrate my lists, and have to go to different websites to use the two services, I don’t have a lot of incentive to keep the one I don’t use.

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  • Robert Farley

    Oh Jesus’ tits, do we have to talk about Netflix in literally every single online venue?

    • Yes.

    • If nothing else, it has introduced me to the phrase “Oh Jesus’ tits” as an exclamation of disgust.

      • Incontinentia Buttocks

        Take it away Richard Crashaw:

        Blessed be the paps which Thou has sucked

        Suppose He had been tabled at thy teates,
        Thy hunger feeles not what He eates :
        He’l have His teat ere long–a bloody one;
        The mother then must suck the Son.

        • Malaclypse

          I did not need to know that those particular words had ever been placed in that particular order.

    • firefall

      Article 3, s4, of the Laws of War & the Internet.

  • Warren Terra

    It really makes no sense. Netflix’s selling point, as an online video delivery service, is that it isn’t one: that you can get that offline-only disc sent to your house at no extra charge in about a day or so. Without the huge customer case of DVD subscribers, Netflix wouldn’t have gotten where it is – and without them in future, it’s got no comparative advantage over Hulu or Amazon or Apple or Google or anyone else who wants to compete with it in the video streaming business. And the streaming content providers will absolutely have Netflix over a barrel once their content is its only reason to exist – as we’ve already seen with Starz.
    And I can’t even comprehend why I’d want to manage two queues, or check my disc queue to make sure it doesn’t have anything I could as easily get streamed.

    Note also this, from Boing Boing:

    In a post on the official Netflix blog, he announced that the company will split streaming and DVD services, and launch a new company to handle the latter (plus games): Qwikster.
    But, oops! The @Qwikster Twitter handle appears to be controlled by a young stoner. Or at least, for now. Imagine all the 420 this young feller could buy with a Netflix payout to take over the handle!

    And, from the comment thread, this:

    Another problem with the name: wanting to check it out, I first went to quixter. Then to qwixter. Then to quikster. Then I gave up.

    So, to sum up: at 3AM a poorly-written email was sent out announcing a major change in our service provider’s entire structure, in a way that is very confusing and causes people to become concerned that the service will now become much harder to use. And the monumental fnckups didn’t check whether the twitter handle for their new name was available, and they didn’t squat the URLs for the half-dozen most likely misspellings of their easily misspelled name (and, no , quickster.com isn’t them either). Honestly, it’s like the CEO was drunk when he announced this.

    PS there is one reason for this move that I’ve seen – the only one that makes any sense at all: as part of their bending Netflix to their will, the streaming content provider were apparently demanding a certain amount of revenue per Netflix customer. Possibly Netflix is desperately trying to lose offline customers to make these numbers work.

    • Vance Maverick

      The Twitter feed @Qwikster is really magnificent.

    • I suspect that Netflix recognizes that its business model will work best if it can offer tiers of streamed online content, and likely also pay-per-view, both of which are complicated by the continuation of their DVD service.

  • The Shaggy DA

    It seems poorly thought out to me as well. They seem to be setting up the DVD service to sell, but are signalling that it’s a worthless property at the same time.

  • And what they’ve really done is convince people who haven’t signed up for either service to not sign up for either service. Personally, I’ll keep on doing things the old-fashioned way – see what movies I want to at our drive-in in the summer time, buy the dvds of the ones I can’t see then, and watch the rest when they come to cable/satellite. Netflix can suck it for all I care.

  • Ian

    I suspect that the studios, using their tiny lizard like brains, have decided that streaming is the future, and that this gives them an opportunity to be outrageously greedy. This puts Netflix in an almost impossible position. The streaming side of their business is gonna see margins squeezed to less than nothing. Breaking the business in two offers some hope of survival. They keep their traditional, dvd loving, customer base, and pray that the streaming side ekes out enough revenue to keep going, but if one fails they still have the other.

    • Ian

      Ok, if I’d read a bit more carefully, I’d have seen that Eric basically says this. I like to think that I’ve helped clarify it though.

      You’re welcome.

  • mpowell

    Man, I hope they just spin of qwikster instead of selling it. The DVD-by-mail approach is the only decent chance of getting reasonable pricing on content delivery in my opinion. Otherwise you’re going to be paying $5/movie or $50/month for streaming content. There’s nothing wrong with the principle of streaming content, but in practice the distributors are going to demand outrageous prices, not to mention broadband providers.

  • Desert Rat

    With this act, I’d say Netflix/Qwixster just committed suicide.

  • mike in dc

    I dunno about pricing…even if you offered everything ever put into a video format, streaming in HD, available all the time, I don’t think a critical mass of customers would pay more than a certain amount–over and above their internet bill–for that. Where that sweet spot is, I’m not sure, but I do know it’s got to be less than 200 bucks but more than 20 bucks a month.

    • Njorl

      They’re making money now charging $9.00. The DVD business would be losing money soon. The postage costs, which will probably increase significantly in the future, make competition with companies like Redbox a losing proposition.

      Their best bet is to spin off the DVD business, then charge the new company a fee for selling its product on the Netflix site. If the new company fails, Netflix is insulated from it. They get the benefit of a loss leader without the risk.

      They want the market that gets internet but not premium cable, which is considerable. Content providers know they can’t charge Netflix too much for streaming product, because Netflix is filling that specific niche. If Netflix costs as much as adding a premium cable channel it disappears. That’s bad for providers. They want to be able to sell to “second adopters”.

      Netflix will be profitable if it is capable of filling that niche more efficiently than a competitor.

  • I’m really torn by this. We only just started streaming, and I like it because it provides more-or-less immediate gratification. The problem I have is that most of the things I want to watch– older movies, mostly– aren’t available for streaming. Before we bought our set-top box we’d argue about which of the three dvds that came in the mail each of us felt like watching. Now we have a larger pool of movies available, but it is a shallower pool as well. Even so, I’m not inclined to keep both services– as it is we use Netflix inefficiently. Add to this the demise of Blockbuster (which I never liked particularly, but was a convenient middle ground on the gratification scale between immediate and deferred), and the loss of independent video stores. Netflix’ strength, for me, was choice– depth of catalog. That is eroding, and it’s a pity.

    • mark f

      What’s available for streaming is cyclical, although I think some stuff is just not available period. There’s usually plenty of older movies available for instant viewing. The quality is often not the best, however.

    • Njorl

      Streaming keeps getting cheaper technically. Older content, with lower licensing fees, will move to streaming at an accelerating rate. At the same time, profit margins on DVDs are shrinking on new releases.

      The future will be BluRay disks for new content via machines like Redbox, and streaming for older content. Netflix might even add “premium streaming”, for newly released-to-disk content, which you can access for $1 or so.

      I also wouldn’t be surprised to see Redbox start offering machines which download content onto reusable secure thumbdrives (which they would sell) which copy protect the content, and replace the old content with new as you rent it. Then, they could do away with the physical product, and update their machines remotely. Their operating costs would shrink even more. Netflix disk-mailing service could not compete with that.

      • Pat L

        “Netflix disk-mailing service could not compete with that.”

        I’m not so sure about that. The nearest Redbox (I just checked) is over a mile from me, whereas my mailbox is conveniently located just outside my front door.

        Granted, I liked Netflix’s chances better when they married the convenience of home delivery with the ultra-super-convenience of streaming.

      • xnetflixuser

        Wow you’re so right. I hope redbox is not reading the comments on this site.

        I really want them to fail.

        I still would rather not have to leave the house to get contant and worry about when i have to return it. dont forget that. you must return ur movie to redbox or they charge you more.

  • AcademicLurker

    Right now Netflix’s streaming catalog is very thin and uneven (as is everyone’s). Meanwhile, brick and mortar video stores, especially the independent ones that were likely to have unusual titles in stock, have mostly gone out of business.

    For now, for a pretty wide swath of movies, it’s Netflix DVD or nothing.

    • I suspect that Netflix wants to send that message to the movie production companies – “You want to monetize your deep inventory? Redbox can’t support that depth, Quikster will keep video stores from returning, so in effect it’s us or nothing.”

    • Lee

      This is why its hard to understand why Netflix decided its best to split the streaming and rental services. Much of what I want to see isn’t available to stream. This means I have to either do the DVD rental, find a pirated version to stream online, or not watch what I want to. If Netflix wants people to stream rather than do DVD rentals than they should make the streaming selection bigger.

  • AcademicLurker

    Netflix DVD Qwikster or nothing.

    • dangermouse

      Qwikster or piracy or nothing.

      • xnetflixuser

        You are correct!

        Netflix will no longer carry dvds and only offer not-so-up-to-date streaming content.
        there will be no other way to get dvds through mail. only Qwikster.

        Theres also no way to get all the movies and shows you want when you want the way that blockbuster and netflix used to offer VIA a low monthly charge. It is not possible anymore.

        They is just no way to get any movie you want at any time you want without paying a fee for each movie. The fun is over.

        Netflix failed. Blockbuster failed.
        Blockbuster didnt take streaming and mailing seriously until they went broke.
        Netflix had it all but started charging more and degraded the service and lost a ton of customers and 8 billion dollars.

        The netflix content now sucks because competiters got together and push the distributers to raise the price on netflix so they cant give their customers good content.

        Fine. the good days of streaming unlimited hd content on ur wii and xbox and dvd player are over but atleast give us some dvds. come on. and im too lazy to goto a redbox.

        I will support qwikser. theres nothing else.

  • triangular gutters

    Clearly separated companies may also gain legal leverage. Conventional wisdom says some players dearly wish to kill Netflix. Black-balling new-Netflix would be more obvious when comparing contracts with other pure streaming services like vudu, Amazon streaming etc.

    I have no idea what legal theories of torts may be in play, but the pointed de-integration of web sites smells a little like a Chinese wall, designed to say “look! we’re just like all the others in this space!” Is anti-competitive behavior enough to get into discovery?

    I would start from the hypothesis that Netflix is not ignorant about its customers, and reason backwards to “what would make them do horrible thing x?” Time pressure lately sounds like a better explanation than several sudden attacks of the stupids.

    • xnetflixuser

      Wow theres so many intelligent people on this site. *and they say tv makes you stupid HAH!

      Yeah, your right about Netflix and their recent troubles. At first, I actually thought they just went stupid on us. I canceled my service one day because i noticed there was nothing good to watch on my netflix…. then they said oh yeah no more dvds for you. im like what the? pay 7.99 on top of my 7.99 plus tax WHAT for nothing good to watch ahhaha no thanks. im not into crappy old movies i never heard of.

      but then i did my research and found that its not their fault. they didnt go stupid on us, they just have to compete. and its like they’re in a game where the competiters are cheating.

      But hey the corporate world is a battlefield. stuff happens.
      Netflix is forced to do what they have to to survive.

      I think.

  • The theory that makes the most sense to me: Netflix’s original plan was for the DVD-by-mail service to work as a cash cow supporting the streaming service, until the latter became profitable in its own right and DVDs went the way of VHS tapes. But Hollywood, in its usual strangle-the-goose wisdom, wants baksheesh from Netflix’s DVD-by-mail revenues as a condition for licensing its movies for the streaming service. The only way to get Hollywood’s paws off the DVD-by-mail revenue was to spin it off (ahem) into a separate business.

    No business like show business….

    • xnetflixuser


  • Erik, it’s really simple:

    1. Split off into two companies.

    2. Sell Qwikster (else, why rebrand it?)

    3. Churn the proceeds into deals with the major studios to release exclusive (or first run) streams

    4. Profit

    (note the lack of “???”s)

    The backstory: DISH Network owns Blockbuster now, not for the DVDs (altho the kiosks apparently have an audience) but for the rights to studio releases. It intends on upgrading its PPV service, which now lags the cable companies significantly.

  • dangermouse

    If whoever ends up running Qwikster has any goddamn sense, they’ll immediately

    1. change the name

    2. launch a streaming service

    • xnetflixuser

      Yeah that name is stupid.
      I thought it was just me.

  • wengler

    I think what’s not noted here is that other companies have gotten in the streaming game lately. HBOGO launched this summer, and though I assume you still have to have a sat/cable subscription with HBO to access it, it works the same way as Netflix.

    I think the whining about Netflix reflects the fact that people were getting a really good deal. I got Netflix almost as soon as it came out. 22 dollars a month for 3 DVDS at a time, and the turnaround on them was about 5 days. Also when I was so lucky to have had it at this time, my credit card information got stolen through a database breach(they were nice enough to send a letter about it), and I ended up getting fraudulent charges every month for about 2 years.

    So, people that were complaining about 8 dollars a month instant streaming plus a DVD rental, I gotta say ‘Really?’

  • Barry Freed

    How about using your local public library? I can take out up to 6 movies at a time (that’s more than 6 DVDs btw, if it’s a TV or mini-series then I can take out an entire season as a time and it counts as just a single item). They usually get multiple copies of recent, popular movies so I don’t have to wait very long to see them and I can get obscure things through interlibrary loan. And I don’t pay a single dime (well, in all the time I’ve been getting DVDs from the library – years now – maybe a total of $3 in late fees.)

    • Matt T.

      Because my local library – the main branch of the New Orleans Public Library system in the CBD – still hasn’t recovered from Katrina and/or the idiotically corrupt and incompetent way the city government here is run. The branches out in Metarie and Jefferson are in better shape, but the main one is still pretty sad with thin pickings. And I don’t know of a single rental place near the French Quarter (where I currently live). I’ve been a Netflix custom since 2006 and I’ve loved it. However, for whatever reason, I don’t care much about watching movies anymore, particularly since I moved to NOLA in 2009. More than once, I’ve held on to movies for more than a month simply because I couldn’t be arsed to watch the damn thing. Never did get around to watching The Imaginarium Of Dr. Parnasus, and I had that one for four months. Plus, my DVD crapped out on me a couple months back and I haven’t bothered to replace it.

      I’m moving to another apartment soon, so money will be tighter than usual for the next few months. Simply so I’ll have something to watch during meals, I may drop the mailing service and have streaming only, as there’s plenty of stuff on there I can watch again and again (“Columbo”, “Blackadder”, “Red Dwarf”). I don’t know yet, though.

  • Barry Freed

    Well that smegging sucks. In all ways (Katrina, NO corruption, etc.,) I was an early Netflix adopter myself around ’99 but left it for various reasons in ’03. Having since discovered the offerings of my public library along with the interlibrary loan service offered I’ve never looked back (they have the full run of Blackadder here, Red Dwarf I did via interlibrary loan some years ago, maybe time for another viewing).

  • DawnnHeather

    I am no fan of companies raising prices with no improvement to products or services offered, but I have to say that as a customer of Netflix since they first started, it’s only mistake was offering the streaming for free in the first place. Had they charged for the streaming service when they first added it, no one would be complaining. When they added this service as a complimentary “more for your money” type of thing, everyone was fine with it. The moment they decide to charge for the service, like every other streaming company does…it’s a problem..hmm go figure..

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