You know it’s a rough economy when the innovative companies that used to make life difficult for their competitors are themselves falling quickly upon hard times. Netflix was the butt of more than a few jokes in the tech and entertainment industries this week when it announced that it was splitting its services into two companies, retaining the Netflix name for Web streaming and inventing a new entity dubbed “Qwikster” to handle the old DVD-by-mail business. The Los Gatos-based Netflix Inc. will still retain ownership of both companies.
The new image shake-up is right on the heels of consumer anger over the new confusing pricing scheme released last month. Clearly, the problem was that people weren’t angry enough with them. Any subscriber will now have to go through two different websites with two different support networks and two different charges on their statements.
Obviously, this new turn of events is not the best idea ever, and obviously the urge to make fun of the shoddily thrown-together marketing for Qwikster will remain strong for some time. However, I feel the slight need to give credit where credit is due and admit that this is probably not the death of the company, and it may even eventually reveal itself as a productive change.
The first truth faced is that the DVD is on the way out. While it may seem like just yesterday that having your favorite film on DVD was considered cutting-edge, the writing is on the wall. The DVD is dying faster than any format before it. The rise of Blu-Ray is only the first nail in the coffin. The biggest enemy to the DVD’s existence is the digital copy.
No matter what the prospects of the DVD look like, few will argue that the move is a user-friendly one. The biggest inconvenience is really for those who wish to continue using both services. One of the great paradoxes of the tech industry is how to sell new products to consumers who are ever resistant to change. Henry Ford once famously quipped, “If I’d asked people what they wanted, they would have asked for a faster horse.” In the short term, Netflix will definitely lose subscribers.
My prediction, though, is that splitting the market will turn out to be the right choice. DVD-by-mail and streaming are definitely two different businesses, and Netflix knows that distinguishing similar yet different services is important. Remember that Netflix’s initial appearance on the scene devastated movie rental chains like Blockbuster while sending others like Hollywood Video to the obscurity of history, simply by catering to Americans’ laziness and hatred of late fees.
The problem is Netflix didn’t count on the hatred of waiting. Red Box gets consumers their movies instantly. Streaming movies one-ups everyone by combining laziness and impatience into a cocktail of entertainment-fueled vice. The ultimate winner, BitTorrent, combines all of the above with the added benefit of being free (if not illegal). Internet streaming is going to do to DVD-by-mail what DVD-by-mail did to rental stores.
Given the forecast for the old way of business and the poorly thought out name, you might expect that they designed Qwikster to die an honorable death, but I have my doubts. The high quality of Blu-Ray is not easily replicable online, and cinephiles may gravitate toward better picture and sound. They’re also adding video games to their catalogue in an attempt to compete with GameFly, a particularly wise move considering that games also don’t lend themselves well to streaming.
Movies in the mail may account for the bulk of their current customers, but Netflix knows full well where the future trends are heading. The legal streaming of movies has a much greater potential market. I don’t need films in the mail, but I definitely could utilize a streamlined streaming system, especially at half the price of an old Netflix account for both services.
Being innovative can be difficult, especially when everyone thinks you’re making a huge mistake. In the same way that a short-term gain might not be the best for the long haul, a change like this might not get off to the best start, but will hold its own over time. I only hope Netflix has the guts to stick with the plan and see where it goes. I’d rather see them fail trying to move forward than die stubbornly staying in place. As Netflix CEO Reed Hastings said in his apologetic blog post, “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”
