What Is Up With Netflix ?

I have been a Netflix member for about 5 years now. For the first couple of years, I was a happy customer utilizing Netflix’s popular two weeks free trial offer. I would cycle through each of my credit cards for each two week period and as a student I had quite a few credit cards. My roommates who also had credit cards did the same and as a result we had a constant flow of the now iconoclastic red DVD mail covers. Once I got a job, of course, I became a paying customer and have not reconsidered it even for a single moment.

That of course changed a month back, when Netflix announced that it is modifying its price structure. Now, instead of paying 10 bucks for one DVD and unlimited streaming on my laptop, iPod Touch and my Xbox, I had to pay 15 bucks for the same service. The other option was to pay 7 dollars for DVD or streaming alone. As a business decision, it made sense for Netflix to increase its price without increasing value, but customers, including yours truly, did not appreciate it. We can’t be blamed too. When was the last time you heard a company hiking its product’s price while offering nothing more in return.

There was mild uproar regarding the way the price hike was announced over the net, too. Many called it insensitive, even arrogant, to the company’s customers, who were cancelling their membership at this point. Earlier this month, Netflix reduced its projected customer base for this year by one million and its stocks plunged close to 11%. To top everything, the company has announced that it will spin off its flagship DVD business into a separate service, cheaply named, Qwikster, while the streaming part will remain, and become the sole focus, of the existing service, which everyone knows as Netflix.

Just the fact that, the streaming service gets to keep the well known ‘Netflix’ brand name is a strong indicator that the company wants to get out of DVD mailing business. Yes, the CEO’s letter said that Qwikster will allow its customers to ‘upgrade’ to rent video games but that’s just to get some buzz around the new service. Qwikster and Netflix will operate as completely separate systems, with different movie queue, rating system and even the billing statement. Clearly, they see the DVD mailing service as an end of life product.

I have always been fascinated by business decisions that make the web go crazy. It is either a brilliant move or a crazy one. Netflix’s business model has always been one of impending doom. It is always tied to the infrastructure cost of bringing the DVD to your home and then taking it back. It is remarkable how its co-founder and CEO Reed Hastings made it to work and grew the company into something that tech giants like Amazon and Apple look to compete with.

With the new spin off announcement, Mr. Hastings is clearly steering the company towards fully digital and over the Internet distribution which is more into iTunes and Amazon Video territory. Here, Netflix is not a prime player, its not even among the top contenders since Netflix’s streaming only customers are much less compared to the customer base of iTunes and Amazon. Netflix’s streaming catalog is unimpressive, with few new releases and, lacking one of my favorite feature, subtitles.

Tech experts and wall street analysts have set the web on fire with so much commentary regarding the Netflix/Qwikster’s current state and future. If you own Netflix stock, then this is a tricky time for you. Hastings’ ploy is either very smart or very dumb. Then again, he also founded the company, so he probably knows what he is doing.

Either way, as a paying customer for the last 3 years, I for one, am sad that I will be getting those red mailing covers with, not Netflix but, Qwikster printed on it. And that too only for a short while.

Soon the DVDs will stop arriving.

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