( Spun off from my [previous post][last post]. [Hat tip to diveintothemark][translate]. )
> I messed up. I owe you an explanation.
“I’m going to continue to confuse a great business pivot (Netflix streaming) with a small business mistake (hamfisted way we bundled a streaming subscription separation with a price increase), and then compound it with a terrible business decision (splitting a company in two).”
> It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology.
“I’m shocked some of you didn’t like the shit sandwich I gave you…”
> Let me explain what we are doing.
“…So I’m going to take a bigger crap on it and give it back.”
> For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do
“Now I’m going to make up some [bullshit analogies][last post] to distract [from][netflix loses subscribers] [the][streaming prices] [real][netflix loses starz] [reasons][usps in trouble]. Hey, did you notice how I referred to AOL ‘dialup’ when you and I know I really mean AOL, the entire company? 😉 Heck, they should renamed themselves [Huff][Huffington Post]-O-[LOL][atrios tweet]!”
> So here is what we are doing and why.
“Double the Benjamins, only half the tedious bullshit of running a business.”
> Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.
“Like you, I stopped with the rentals when I found that every title we can’t stream can be downloaded in an hour using [BitTorrent][bittorrent].”
> I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.
“I got Apple to let me put out the Netflix App with nary a peep from them because they thought my main business was going to be this archaic DVD-by-mail. Heck, I even got them to bundle my shit into their Apple TV and do all the work. [Amazon][kindle app store] and [Conde Nast][wired app store] can eat my farts! Lolz!”
> So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.
“I want to play with the cool new toy. DVDs-by-Mail was a pain in the ass. I’m going to spin it off into some worthless business that is going to die.”
> It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.
“I picked a name that sounds like it came from 1999 so you know where Qwikster [is going to be][dead pool] long before the **next** 10 years are up.”
> Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies.
“Can you imagine telling your friends that ‘I’m using Qwikster?’ You might as well be saying, ‘In my day, we got DVDs by mail and [WE LIKED IT][grumpy old man]!'”
> One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow.
“We’re going to put all the money-losing ideas that we knew better than to do into Qwikster in the hope that Qwikster can take down [Gamefly][Gamefly] along with it.
> A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.
“You’re going to love having to rate every movie twice on two separate websites. Also, you know all those times when you went to rent something and realized you could stream it, or those times we couldn’t stream stuff and you just added it to your queue? Say ‘Buh-bye’ to that, bitches!”
> There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges.
“Instead of punishing just the 1% of you who whined about new pricing, I’m going to punish the other 99% also with new pricing, separate billing, **and** a new company.”
> We will let you know in a few weeks when the Qwikster.com website is up and ready.
“The rest of you, don’t look into [Hulu Plus] or [Amazon Prime][amazon prime], until one of them has bought us out, K?”
> For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.
“The sock puppet grew on me also…right until the moment Pets.com went out of business and it became a meme for FAIL. I hope [this meme][qwikster cancel tweet] for FAIL will top that.”
> I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.
“Fuck you, loyal customers.”
> Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.
“If you’ve been assigned to the Qwikster team, just know that all of us never liked you in the first place, but we couldn’t justify shitcanning you.”
> Respectfully yours,
“No matter what happens, I’m rich, bitch!”
> -Reed Hastings, Co-Founder and CEO, Netflix
“If you haven’t gathered it by now, this signature shows I don’t give a shit about ‘Shitster‘. Oops! I mean ‘Qwikster.’ Also, if your name is Jeff Bezos, you now know who to call for a M&A.”
[Gamefly]: http://www.gamefly.com/ “Gamefly: Video Game Rentals”
[dead pool]: http://www.fuckedcompany.com/ “Fucked Company is Fucked. The dead pool”
[Huffington Post]: http://www.huffingtonpost.com/2011/02/07/aol-huffington-post_n_819375.html “AOL Acquires Huffington Post”
[john cole]: http://www.balloon-juice.com/2011/09/19/odd-man-out-again/ “Odd Man Out Again—Balloon Juice”
[Windows XP]: http://en.wikipedia.org/wiki/Windows_XP “Windows XP—Wikipedia. While Windows still has a DOS prompt, the first Windows not built on top of DOS was Windows NT. The first consumer Windows built on that kernel was Windows XP, which succeeded Windows ME which succeeded Windows 2000.”
[art of the parlay]: http://daringfireball.net/2004/08/parlay “The Art of the Parlay, Or: How I Learned to Stop Worrying About Platform Licensing and Market Share—Daring Fireball.”
[the music subscription model]: http://terrychay.com/article/the-music-subscription-model.shtml “The music subscription model. Here was an argument from the same time period with a different co-worker. This one felt that Virgin Music would kill off Apple iTunes. I disagreed. :-)”
[bittorrent]: http://en.wikipedia.org/wiki/BitTorrent_(protocol) “BitTorrent (protocol)—Wikipedia”
: http://www.hulu.com/plus “Hulu Plus”
[translate]: http://diveintomark.org/archives/2007/04/16/dhh-translation “Translation From PR-Speak to English of Selected Portions of Rails Developer David Heinemeier Hansson’s Response to Alex Payne’s Interview—Dive into the Mark”
[kindle app store]: http://www.huffingtonpost.com/2011/08/10/amazon-kindle-cloud-reader_n_923573.html “Amazon Kindle Cloud Reader Sidesteps Apple App Store Restrictions—Huffinton Post”
[wired app store]: http://paidcontent.org/article/419-conde-nast-does-last-minute-pivot-on-wired-app-pricing/ “Conde Nast Does Last-Minute Pivot On Wired App Pricing—paidContent”
[last post]: http://terrychay.com/article/dvds-by-mail.shtml “DVDs By Mail”
[netflix loses starz]: http://www.rollingstone.com/culture/blogs/gear-up/netflix-loses-huge-library-of-movies-from-starz-20110902 “Netflix Loses Huge Library of Movies from Starz—Rolling Stone”
[usps in trouble]: http://abcnews.go.com/blogs/politics/2011/07/postal-service-pushes-to-end-saturday-delivery/ “Postal Service Pushes To End Saturday Delivery—ABC News”
[grumpy old man]: http://www.hulu.com/watch/4303/saturday-night-live-grumpy-old-man “Grumpy Old Man—Hulu”
[atrios tweet]: https://twitter.com/#!/Atrios/status/115781657377767425 ““quixster’s dvd library will consist only of aol free trial discs’ —@Atrios on Twitter”
[amazon prime]:bhttp://www.pcworld.com/article/220399/amazon_prime_vs_netflix_video_streaming_feature_showdown.html “Amazon Prime vs. Netflix: Video Streaming Feature Showdown—PCWorld”
[qwikster cancel tweet]: http://twitter.com/#!/jeremybowers/status/115788501030682625 ““Qwikster, noun: The sound of several million Netflix subscribers clicking on their mice to access the “cancel my account” page” —@jeremybowers on Twitter”
[streaming prices]: http://money.cnn.com/2011/07/08/technology/netflix_starz_contract/index.htm “Netflix’s vanished Sony films are an ominous sign—CNN Money”
[netflix loses subscribers]: http://techland.time.com/2011/09/16/netflix-loses-1m-subscribers-because-of-price-hike/ “Netflix Loses 1M Subscribers Because of Price Hike—Techland @ Time”
I am now a Qwikster customer and no longer a Netflix customer. It has nothing to do with a love for antiquated technology, it is simply a matter of content. I used to stream from Netflix all the time, but their catalog has shrunk in the last six months. Now I never do, so no sense in paying for something that I don’t use. I was kind of glad that they changed their rates, since now I am paying less to them than I was before. IMO their US streaming catalog is so poor now it is barely a cut above YouTube.
You make a great point about the two sites will make it where you don’t know if something is available in the alternate format. Well actually everything is available in physical format, so really Qwikster customers might just lose the knowledge of if something is available for streaming. If I saw that most of what I wanted to watch was suddenly available digitally again, I would certainly switch to Netflix.
Mike, thanks for these observations. Here is my take:
tl/dr version: Netflix is taking everything customers like you did building up a great brand name and using it for something else. In the meantime they plan on repaying that loyalty by treating you as a red-headed stepchild.
In the previous article, I explains why this is a terrible business decision. Instead of the AOL dialup or Borders bookstore analogy he uses, this decision is more akin to Apple creating a separate company to sell the Mac because of the iPhone/iPad success, or Amazon spinning off their direct-mail business because the Kindle is doing better.
I also stated my belief that the average Netflix subscriber (DVD-by-Mail) watched differently (different movies, different delivery expectation) than the average person (same popular movies, instant gratification). I alluded to the extension that this difference is the cause of the growing pains they are experiencing now: They want to pivot the long-tail niche into a mainstream (pardon the pun) one. It’s not easy (imagine how well it worked for Digg when they tried to go “mainstream”). Even though you have a family, your movie viewing habits with Netflix clearly put you in the former camp.
The synergy for those, like you, in this DVD-by-Mail modality is realizing you don’t have to wait for a DVD if Netflix has it streamable. I, personally, probably watch a lot more movies on Netflix than I do on Hulu because of that. And I have never advantaged myself of my soon-expiring Amazon Prime streaming (really, I go to Amazon to buy stuff, not stream free movies. Thanks for nothing, Bezos.).
As you mentioned in your comment, in one of the articles I linked, I imply that losing a huge part of their streaming catalog influenced the above decision to split the company. I feel the users were noticing the dramatic increase in things-you-couldn’t-stream and it is going to get even worse with losing Starz. If your business is going to be streaming, it now makes sense not to show how terrible your selection is—it’d be like Apple listing a song in iTunes Music Store that you cant buy, but you could get on CD from Amazon, or stream on Spotify.
In another link, I imply I also think that they separately plan on raising their prices for the DVD-by-Mail business anyway. But instead of using the “streaming licensing” as an excuse, they’ll be using the USPS rate changes and elimination of Saturday delivery.
There is a third reason I didn’t allude to. DVD subscriptions are “per household” but they want streaming customers to be “per person.” Splitting the two will allow them to move streaming users to the latter and increase their profits. This is what Reed is alluding to when he says, “So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently.” That’s PR-speak for “we plan on charging you per-person because we can’t charge you per-DVD.”
BTW, I’m both a Qwikster (large catalog which I can always time-shift using RipIt, and I’m not a fan of torrents) and Netflix streaming (For now, I can share it with my girlfriend, who has an iPad, and my dad, who has my old AppleTV) customer. I will wager that people who think this split is a good idea, people like John Gruber or John Cole, are primarily streaming-only customers. Dual users obviously hate it, and the loyal DVD-by-mail user dislikes it but probably can’t express why. Then there are the 2%ers who are cheapskates who are going to whine no matter what happens.
But the writing is on the wall with the Qwikster announcement—our alternatives in a few years are going to be individual streaming subscriptions (Netflix, Hulu Plus, Amazon Prime, Dish Network/Blockbuster), pay-per-download (iTunes, Playstation, XBoX), or those kiosks in Safeway that carry only the latest Hollywood excrement (Blockbuster Express/Redbox).
Given the competition between streaming and pay-per-download. I’m curious to see how Apple, Sony, and Microsoft are going to react now that Netflix is streaming-only. I have a feeling that they’re going to be even more aggressive at raising up competitors (Hulu) on their platforms, and courting the TV manufacturers (Samsung, Sharp, etc.) to get their business model in there. In that shakeup/consolodation, I still think that Netflix is well-positioned—assuming Dish Network doesn’t acquire Hulu.
Comment on Balloon Juice
@acm: No. Netflix streaming licensing deals are so restrictive that they need to charge separately for it which is what the uproar in July was about. The single main restriction for streaming content licensing are its exorbitant price increases. They always have the option to negotiate the DVD catalog licensing separately, since that stuff was codified when Sony beat the crap out Universal. Netflix is in a tough position because all the companies they compete with on streaming (Blockbuster/DISH/soon-to-be-Hulu, Apple, Microsoft, Sony, Yahoo (soon), Amazon, Comcast, etc.) have much more money than Netflix. Right now, Netflix’s single advantage is its massive subscriber base that is actually using streaming.
Ask yourself, if Netflix gave a shit about the DVD-by-mail business then why is the streaming business keeping the brand name? Clearly they are saying in 40 ft high burning letters that they think the DVD-by-mail is the dying business, recently accelerated by the way the announcement in July, and now dealt a death-blow with this announcement.
When you parlay one advantage (DVD-by-mail dominance) into another (streaming dominance), you don’t immediately abort the old business. Did Microsoft spin of MS-DOS before Windows XP came out? Has Apple aborted the Macintosh or even the iPod now that the iPhone and iPad are killing it? Is Amazon spinning off their “books-by-mail” business now that they have the Kindle? Hellz no!
This is such a pile of massive stupid from a business perspective that I think the real reasoning is to slough off the DVD-by-mail business in order that Netflix (streaming) become a likely acquisition target for a late-comer with more money.
Thanks for the entertaining read, Terry. I was annoyed by the original announcement and thought the latest one from the CEO was just flat out stupid. “Qwikster”??!! Give me a break.
My personal take – I want to unsubscribe from this company soon after watching some oldies in my queue that I generally don’t get a chance to watch. Redfox or bit torrent is just easier / cheaper now. I really liked streaming but my main gripe was that it didn’t have a large selection, and I don’t see that changing anytime soon. DVD by mail was the best in terms of selection, and I loved the integration between the two that allowed us to see if the movie was available via streaming. But frankly over time, I realize that I’m not getting my money’s worth with either because I don’t watch a movie right away after receiving and send it back – which is probably what Netflix / Qwikster banks on.
I think the customers are the big losers in the latest announcement, and I hope they fly away from this company in droves in the upcoming months just out of principle.
Leaving out principle, buried in the links of my article, I noted one million users have followed you out the door. The best-case view someone can have about this non-apology apology e-mail is, “I don’t care.” So most likely his announcement will only accelerate that trend.
BTW, Netflix already has in place a mechanism to throttle users like me who churn through DVDs quickly (I do so because I can time-shift most DVDs by using RipIt), so their business model is not dependent on people rarely returning video. In fact, churners like me can be useful in allowing one to fix inventory levels between shipping centers (for instance, ship a DVD that is missing in the Bay Area by shipping it to me from the East Coast. Then I return it into circulation in San Francisco).
In fact, Netflix is very good at this sort of thing, which is why competitors like Blockbuster and Walmart ate dirt.
Unfortunately, they haven’t found a way to translate those advantages into a lasting one on the streaming market. They have managed to parlay it into a temporary one, but it is fast deteriorating.
Too bad. I really admire the company. I wouldn’t be able to write such a facetious article if I didn’t. 😉
This is awesome 🙂