Netflix Reverses Course on Qwikster

Netflix has decided to reverse course on its plan to separate the "DVD by mail" business from its streaming business. "It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," Netflix now says. 


Netflix says it is keeping the new price structure, though. Still, users who want both DVD content and streamed content will not have to navigate two websites, or pay two different bills. 


The reversal is the most-recent demonstration of the power of social mechanisms that let consumers voice their opinions, as Netflix was bombarded with negative reviews when the plan was announced. 

http://blog.netflix.com/2011/10/dvds-will-be-staying-at-netflixcom.html

Netflix Separates DVD, Streaming Businesses

It is hard to know for sure, but it is possible the recent bankruptcy of Borders bookstore might have played some role in convincing Netflix CEO Reed Hastings to move up the speed of the Netflix transition from DVD rental to streaming.

Netflix long has planned for such a move, but it is conceivable that the Borders bankruptcy, and clear sluggishness at Best Buy, could have convinced Netflix to move faster.

 Add new fourth generation wireless networks, tablet demand and faster uptake of smart phones and one can argue the business background for streaming is changing.

One also might note that creating a separate Qwikster business makes it easier to sell the whole DVD business, if desired.

Netflix steps up streaming effort

Netflix’s DVD business: Does Qwikster have a future?

Most, perhaps all of the commentary about the Netflix decision to create separate streaming and DVD by mail businesses seems to be negative. Netflix says the separation will provide an easier user experience, but a fair-minded person might question that position.

Creating two separate billing entities, with different and distinct commenting and rating systems, with the need to update two different sites when personal or billing data changes, is hard to envision, as an enhancement.

Some users will gladly trade off selection for immediacy. As Netflix moves toward offering more TV content, that could change. Netflix users might find they have a wider selection of TV content to choose from, compared to Qwikster users. For TV-centric viewers, that could be the tipping point. For movie-centric users, the tipping point might be quite some time away.

Perhaps most think the separation, which could result in better management of each entity, might speed the demise of the DVD operation. The transition is likely to be more gradual than many expect. The reason is the value proposition. Right now, the streaming operation simply does not offer the content richness that the DVD by mail option can offer. And in a content business, breadth of content matters.

Does Qwikster have a future?

Netflix Splits in 2: Why?

Netflix says it is separating its DVD by mail and streaming operations into two separate business units, with Netflix retaining the current brand name, while a different "Qwikster" brand being created for the DVD by mail business. Netflix splits in 2

"Streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently," says Netflix CEO Reed Hastings.

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.

Qwikster will add a video games upgrade option, similar to the current upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games.

Hastings says the separate, non-integrated websites will offer greater simplicity for users, though that might be a point of contention.

Each website will be focused on just one thing (DVDs or streaming), and will be even easier to use, Hastings argues. But a negative of the separation is that the Qwikster.com and Netflix.com websites will not be integrated.

Since about 60 percent of Netflix subscribers appear to pay for both streaming and DVD access, the implication is that 60 percent of users now will get two separate bills, have to use two different sites, and see partial sets of recommendations and reviews on each site. If you rate or review a movie on Qwikster, it doesn’t show up on Netflix.

"If you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places," Hastings says.

What is clear is that it will be better for Netflix. The price move was not a “decision,” so much as a “reality” presented to Netflix from the content owners in Hollywood, argues Bill Gurley, a venture capitalist at Benchmark Capital. The first sale doctrine  likely is involved. Basically, under U.S. law a product (a DVD) can be purchased and then lent or sold without further payment of royalties to content owners. 


The key point is that "first sale" does not apply to streaming services. If you want to know why content owners prefer streaming to DVD rentals, that's the reason: they make more money. 


Netflix must negotiate for each and every streamed title, and the price of the right to stream that digital title is up to the whim of the content owner. If an owner says "no," no distributor can get access. Copyright rules under "first sale"

If you assume Hollywood stuidos wanted a price per month per user to license streamed content, there is an economic problem for Netflix. Netflix obviously would prefer to pay only for content that users actually watch. 

By separating the two businesses, Netflix actually pays less (if the scenario is correct) because the number of potential subscribers is less. Though susceptible to the charge it has made a bit of a kludge out of its business, Netflix might have been forced to do so for financial reasons beyond its control.