Netflix: The Story of the Qwikster Debacle

July 16, 2012

CNET recently profiled the year leading up to the whole price hike and Qwikster debacle. Just months before, Reed Hastings had been nominated CEO of the year, and was admired by everyone in tech.

What Hastings faced was the pure Innovator’s Dilemma: how to maintain your sustaining business while growing the future business and not alienating current customers. There’s no doubt that we are moving to an all online movie world, discs are a thing of the past.

What sticks out about this story is the haste that decisions were rolled out. You have to admire a CEO that will act and not talk about it in meetings all day. The issue was the incorrect underlying assumption that not many people would care about the price hike:

Two weeks later, when the company reported second-quarter earnings, Hastings said in a letter to investors that the company was sorry for upsetting subscribers, but he predicted that most wouldn’t cancel. In the same letter, Hastings also clumsily added that the increase would likely help Netflix for the first time top $1 billion in quarterly revenue.

Whenever a price changes, people have to decide if it something is still worth paying for. There were most likely too many people who had the same discs sitting at home for weeks or months who realized they weren’t making full use of the service. You remind them that they’d been meaning to cancel for a while anyways.

I do think that Netflix will recover. Their biggest issue today is content acquisition. Studios get that this new model means less big bang up front from a DVD release. The interesting analysis though is if in the long run, the regular income from subscriptions can add up to more than people are spending on DVD purchases.

I’m sure a large number of customers would pay considerably more than the current $7-$8 per month for access to new and recent releases, even if they are time delayed.

My guess is yes. Even priced at $30/month for access to full movie catalogs (go ahead and time delay them 30-45 days from DVD purchases), Netflix 20 million+ customers would be a sizable chunk of money.

The disruption in this space over the coming decade will be fascinating.

  • Gridlock Manifesto

     

    I wonder what the average number of hours per person an average Netflix subscriber watches media.  I know they released the total number of hours streamed, and we know the approximate number of people who subscribe, but I have never seen a statistic that includes the DVD by-mail numbers.  I probably average 22 hours a month just for myself, then add my kids’ streaming and that is more than triple that number coming from my Blockbuster @Home subscription.  My Dish co-worker loves the unlimited games by-mail, which is cheaper than Gamefly, while I like the unlimited Blu-ray’s by mail for the superior video and sound.  That makes for more value when I consider streaming is included, and now I get more use out of my home theater.

  • Gridlock Manifesto

     

    I wonder what the average number of hours per person an average Netflix subscriber watches media.  I know they released the total number of hours streamed, and we know the approximate number of people who subscribe, but I have never seen a statistic that includes the DVD by-mail numbers.  I probably average 22 hours a month just for myself, then add my kids’ streaming and that is more than triple that number coming from my Blockbuster @Home subscription.  My Dish co-worker loves the unlimited games by-mail, which is cheaper than Gamefly, while I like the unlimited Blu-ray’s by mail for the superior video and sound.  That makes for more value when I consider streaming is included, and now I get more use out of my home theater.

  • Sveta

    Netflix is not to forget the important customers who are deaf and hard of hearing who need captions for their online movies. Netflix has upset the deaf/hard of hearing community to the point that the organization got into the lawsuit that has been going on for a long time..

    • Not a part of the angry mob

      It’s a nuisance lawsuit.  Absurd that a judge allowed it to go forward.  Where are the closed captions at a movie theater?

      • Sveta

        It’s a nuisance for you until you lose your hearing. And this is about making all online media captioned to give equal access to millions of deaf and hard of hearing.

        • Not a part of the angry mob

          Again, why no closed captions at the movie theater?

          This is about lawyers making money.  All of that settlement money that they will extort Netflix into will help furnish some nice houses in the Hamptons or trick out a new yacht.

          It is absurd to assert that Netflix is a public place and need to make accommodations for everyone.   It’s a private company that a judge has gone too far in exerting his will upon in forcing them to act as a public space.  Here’s an idea if it doesn’t fit your needs, don’t sign up for the service.  What’s next?  A lawsuit because there aren’t Spanish, German, or Swahili subtitles?

          It’s tough to feel sympathy for a group of people and greedy lawyers when they are pushing so far and forcing companies to modify content because they have a sense of entitlement.

  • Sveta

    Netflix is not to forget the important customers who are deaf and hard of hearing who need captions for their online movies. Netflix has upset the deaf/hard of hearing community to the point that the organization got into the lawsuit that has been going on for a long time..

    • Not a part of the angry mob

      It’s a nuisance lawsuit.  Absurd that a judge allowed it to go forward.  Where are the closed captions at a movie theater?

      • Sveta

        It’s a nuisance for you until you lose your hearing. And this is about making all online media captioned to give equal access to millions of deaf and hard of hearing.

        • Not a part of the angry mob

          Again, why no closed captions at the movie theater?

          This is about lawyers making money.  All of that settlement money that they will extort Netflix into will help furnish some nice houses in the Hamptons or trick out a new yacht.

          It is absurd to assert that Netflix is a public place and need to make accommodations for everyone.   It’s a private company that a judge has gone too far in exerting his will upon in forcing them to act as a public space.  Here’s an idea if it doesn’t fit your needs, don’t sign up for the service.  What’s next?  A lawsuit because there aren’t Spanish, German, or Swahili subtitles?

          It’s tough to feel sympathy for a group of people and greedy lawyers when they are pushing so far and forcing companies to modify content because they have a sense of entitlement.

  • Sveta
  • Sveta