Let me take you back to July 12th, when Netflix announced that it would be separating the pricing of its highly successful DVD service and its promising online streaming service. In the new pricing model, the price to both stream movies and rent 1 DVD would be $16/month, which is a 60% increase from the previous price of $10/month. Netflix’s consumers were outraged about this price increase and the took to social media and Netflix’s blog to voice their opinion. Of course like with any story there are two sides: 1. 60% is just a shocking percentage, it’s only $6 extra a month and not that many subscribers will end up leaving. 2. There is no way the average Netflix consumer is going to stand for this and a 60% increase in price is unacceptable. I personally was in the 2nd camp, I thought the company would be hemoraging subscribers when the price change took affect in September — I wasn’t too far off either.
Let’s fast forward to September 15th, the day Netflix announced that it was adjusting its 3rd quarter guidance numbers for its domestic subscribers, the previous numbers were off by 1 million total subscribers. After releasing the new numbers the stock price fell 19% that day to 169.25 which was a whopping 40% below the closing price on July 12 of 291.27. Hmm that’s interesting, I know we’re all wondering how could a great company like Netflix, with such promise for growth, in a mere 2 months find itself starting to etch its name on the tombstone next to Blockbuster. I’m sure the CEO and other executives were wondering the same thing; their solution to the problem you ask? For that we fast forward a few more days to today, September 19th, when in the early hours of the morning CEO, Reed Hastings, sent an email to the remaining customer base to “apologize” and explain the reasons for the change. In this letter Mr. Hastings admitted that he was wrong for the drastic price increase and for the way in which it was done. After the apology Mr. Hastings informs us that not only is the price here to stay but that Netflix is completely separating the streaming and DVD services and changing the name of the DVD service to Qwikster. But there’s good news too, you know that pretty red envelop that the DVDs come in? Well the envelop is still gonna be red, just the name and the website that you get them from is different and your reward for being a loyal customer is 1 charge from Netflix for the streaming service and 1 charge from Qwikster for the DVD service. Netflix’s customers of course were in even more of an uproar at this latest announcement; the blog post already has over 21,000 comments in less than 24 hours.
I don’t think many people will disagree that the future of Netflix lies in online streaming but I do think many people, including myself, will disagree with the haste in which Netflix is trying to separate its streaming and DVD rental services and I think they’re losing a lot of customers in the process. Don’t get me wrong, I love the streaming option and I think it has so much potential; I’m talking iTunes, let’s change the whole game, potential. But I have major issues with the lack of content available for streaming; I can only speak for me personally, but if I’m gonna pay for a movie rental service I want to be able to rent almost any movie I can think of including the newer movies. My friend nailed this issue as being “DVDs are declining but the content is high and streaming is growing, but the content is low”. I think most of the customers get that the increase in price will give Netflix more capital that can be used to purchase streaming content but why does the increase have to be so much? Why do the services have to be completely separate? I don’t have the answers but I am curious about the logic behind taking the brand name that they have built with the DVD service away from the DVDs and I don’t think keeping the red envelop is going to ease any frustration when you have to visit two websites to watch one movie. I hope for Mr. Hastings’ sake that I am completely wrong about the way this is all going down and that he, like Steve Jobs, knows the way that so many of us can’t see.