The Netflix Split
As a Netflix customer...
I was not happy about the price change and I knew right away the I personally was not going to pay a premium to have my DVDs delivered when Redbox is two blocks away and the one Blu-ray I get a month is only $1.50. I was a little peeved at the moved but understood the change.
I think that most customers know that it is expensive to deliver DVDs as quickly as Netflix has been doing to every subscriber. I'm pretty confident of that. What I am not quite as confident about is that everyone knows that the DVD business is dying. Physical media as whole is downtrending.
I see the trends and understood the move that Netflix had made. The model that made the company was changing and they needed to adapt or eventually feel the pain of sustaining a declining model. I knew right away that Netflix was being smart in anticipating the change in the marketplace and the need to put distance between physical media and concentrate on streaming content and profits.
As a customer I was not happy that now I had to make trips the Redbox machine but at least I had a choice. I also knew that Redbox's business model was not going to last forever before it too had to be re-invented or be relegated to a niche industry. So, if I want to rent a Blu-Ray disk I had a place to go and I'm cool with that. My Netflix account is cheaper for me now with streaming only and I can still get a DVD I need to.
I adapted and I changed.
As an Investor...
I thought it was smart for Netflix adapt and change as well. Netflix knew that their new pricing model would cost them some customers so they told investors to expect the loss of approx. 400,000 customers. They knew some folks would not get it and go elsewhere. Is this arrogance or reality? Maybe it’s just bad marketing due and a lack of proper customer education when a company charts a new path. You decide. However, no one argues that the model needed to adapt.
Now that Qwikster has been announced, is it smart that the company would create a whole new brand and the marketing that goes along with it, instead of just reintroducing a new combined pricing structure?
It's going to wither on the vine eventually. Separating physical media into Qwikster is a brilliant move. Eventually, when it does wither it will shrink without dragging the Netflix brand with it. They just should have announced this the same day the announced their new pricing model. Hence, the arrogance.
The fact the 700,000 customers were lost may have humbled enough them to treat their customers with a little more respect but their strategy has not changed. Delivering DVDs to household is dying and no one is going to change that. The introduction of video game DVD offerings does not change the outcome. DVDs are dead.
Qwikster is the new name for a declining model. Netflix remains as an industry leader in the digital convergence landscape and is now free to negotiate with studios, compete, and deliver the best content available.
Netflix’s execution of may have been ill conceived but their recovery was noteworthy and telling of a strategy for the future of the company that will serve investors well.
(who has no holdings in Netflix but thinks this may offer a good opportunity to buy)