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Netflix Spins Off Qwikster, Flips Off Customers

September 23, 2011
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Online Marketing Blog Roundup

There are two kinds of news: the kind of news that everyone gets excited about and the kind of news that everyone complains about. (Well, I guess there’s a third kind, the kind that nobody care about, but leaving that aside...) The webby world got some news of the former type this week, and that was the news that Netflix is splitting into two separate brands: one for the snail-mail DVD rentals that put the company on the map, and one for streaming services, the direction that movie rentals are going in. The streaming-only service will continue to operate under the “Netflix” name, while the old-school DVD business will be branded as “Qwikster.”

This news came straight from the horse’s mouth (that horse being Reed Hastings, Netflix co-founder and CEO), framed as an apology for not being completely upfront about recent changes to its pricing structure. Hastings justifies the split like so:

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) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly. …

So we realized that 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. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to “Qwikster”.

If anyone was happy about this announcement, I haven’t heard about it. Hastings’ post so far has upwards of 26,000 comments (yes, you read the number of zeroes correctly). I also saw lots and lots of complaining on Twitter. For example:

Netflix tweet

Netflix Tweet

And lots of complaining in the blogs, along with some armchair strategizing of the “How I’d run a multi-million-dollar company since I know everything” variety. Let’s go over some of it, shall we?

Netflix Drops Ball on @Qwikster Twitter Account

Mashable was quick to point out that Netflix made a dire mistake in not securing a Twitter handle before settling on its new brand name. Why? Because the @Qwikster account is already claimed, by a “weed-smoking Elmo” no less.

Weed Smoking Elmo

Since the article went live, @Qwikster AKA Jason Castillo has changed his picture to a shield. But it doesn’t appear that he’s surrendered the account to Netflix control. Here’s the most recent tweet :

Qwikster tweet

How Not to Kiss Your Customers Goodbye

Ryan Healy suggests that Netflix could have eased the bad news the first time they hiked prices (in July) by offering an explanation: “Even the most inexperienced direct marketer knows that you must always give a reason why, especially when you’re raising prices and especially when you’re raising prices in a consumer market.” Then, he says, they screwed up double by giving an overdue apology “After 69 days of hemorrhaging customers” – and, to boot, it didn’t feel so much like an apology as “a cover for more bad news.” Ryan explains how he would have handled the change, including writing a more tactful and transparent customer letter. He also says the company shouldn’t have diluted the Netflix brand, and that customers who want to use both services should still get a discount – that just makes good business sense.

Are DVDs a Sinking Ship?

Gizmodo offers an explanation of why Netflix really made the split:

It's an obvious point, but it's the one that matters: DVDs are becoming obsolete. But there's no mass extinction event to point to; it's a lugubrious death, a slothlike shuffling off. Some people will be renting DVDs by mail for years and years after it makes any sense, just like some people still have Aol email accounts and buy full-size camcorders and watch Grey's Anatomy. So why not keep making money off those people for as long as you can?

Think of it like this: sometimes you need to amputate, and sometimes it's better to quarantine.

In other words, Netflix doesn’t want its dying DVD business to drag the streaming business with it, like a drowning person who flails so much he can’t be saved and instead takes you down too. And, Brian Barrett notes, there are benefits to keeping these two services siloed off:

First, it keeps streaming customers shielded from the inevitable DVD price increases that will come with fewer subscribers and ever-increasing postal rates. And—maybe more importantly—Netflix is able to limit the constant reminders of all the movies that you can't add to your Instant queue. Streaming customers won't be able to see DVD availabilities any more, which means you won't get that feeling that you're staring at an unattainable ocean of truffles and bonbons with nothing but a Werther's Original in your hand.

It feels like I’m one of the few people who doesn’t use Netflix, though I have used it in years past. I recently trialed a streaming-only membership, but there were two big reasons I didn’t subscribe:

  1. My wireless internet wasn’t fast enough, and the movies were constantly crapping out mid-stream.
  2. The selection really sucked. It felt like almost nothing was available to stream.

So I can see what Barrett is getting at here. Maybe the selection wouldn’t have seemed so cruddy if I wasn’t being taunted with everything I couldn’t watch.

Barrett also suggests that Netflix intends to sell off the DVD portion of its business before long (which is why it didn't bother giving much thought to the branding).

Double Trouble: No One Wants to Manage Two Queues

One of the biggest issues users have had with the split is that it makes something easy into something complicated, if you’re one of the customers who wants to make use of both services. As Gawker explains:

The biggest qualm with the new plan — and it's one you've likely already noticed if you've kept both services — is how difficult Netflix has made it manage your queues (particularly on mobile devices). If a movie isn't available on streaming, and it often isn't, figuring out how to get it mailed to you has become a labyrinthian [sic] chore designed to wear you out before you get around to taxing their overtaxed and unprofitable mail order business.

Now, the two autonomous services somewhat clarify that, but add needless steps to what used to be a seamless process. Can't find a movie on Netflix? You'll have to pull up your Qwikster account and order it there. Loved a movie on Qwikster and want to tell your Netflix friends? Tough. You'll have to re-recommend it on Netflix.

Many people were likening the split to having to go to two separate stores to buy bread and meat if you want a whole sandwich. (See the Oatmeal’s comic interpretation of the business move.)

Want even more Netflix bashing fun? Check out:

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Have a good weekend, all.

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