September 19, 2011 2 Comments
So, I was quite surprised today to learn via FB that Netflix (a service I generally love) is splitting its business into two: Netflix streaming service and a new DVD delivery service, Qwikster. Much to the dismay of virtually every commenter (and myself) these services will not be linked at all. Wow, that it so customer unfriendly and I can’t see how it won’t really cost them business. I especially agree with this comment:
” You’re continuing to make a classic mistake: thinking you’re something different than what everyone believes you are. You’re not a DVD company and a streaming company: you’re where I go to watch movies.”
How could they possibly think this is a good idea? As Megan McArdle argues, here’s how. Basically the mail-delivery DVD business is a dead-end business and Netflix wants to get out of it and at the same time protect their brand:
It’s not that Netflix doesn’t have a problem. They have a huge problem. The company never wanted to be in the mail-order DVD service long-term; it’s not a good business. Redbox was threatening to carve off the casual users, leaving them with the high-traffic movie buffs who don’t make them money; meanwhile, the warehouses necessary to maintain the business at high traffic levels are costly to build and operate. Plus any idiot can see that the future is likely to be in painlessly streaming movies over the internet, not putting physical discs in little envelopes and mailing them. The fact that the Postal Service is near bankruptcy tells you a lot about the viability of business models based on mailing things.
Looks like the big losers of the future will be people like me who don’t just want the latest hot releases (which Redbox has covered) and are unsatisfied with the lesser options on streaming (e.g., right now you cannot get any of the classic HBO series, Mad Men, some great Indie films and documentaries, etc., except via Netflix DVd– or an expensive purchase). If there’s no viable business model for renting that content– and I sure hope there is– that’s a huge loss to consumers.