I went to Safeway the other day and was shocked by a new business that had opened up next door. It was a video store. With the exception of Red Box or the DVD section in the local grocery store, video stores are practically extinct. This is due in large part to the prevalence of Netflix. Netflix has changed the way we watch movies. And they are about to do it again.
Recently Netflix announced that they were going to effectively split the company in two. Their DVD by mail service that was the nail in the coffin to your local Blockbuster is now going to be called Qwikster. Meanwhile, their streaming service which you can use on most gaming consoles and Blu Ray players, will continue to expand under the Netflix banner.
Qwikster will continue to have the wide variety of movies and TV shows you’ve come to expect from Netflix. In addition to that they’re adding a video games section for an additional charge, much like they do with Blu Ray DVDs now. That’s the good news. There’s more than a little bad news. The most noticeable change is that the two sites are not going to have any interactivity. So the movie in your DVD queue and your streaming queue will no longer be able to interact with each other like they do now.
There are many who see this move as stupid. It’s hard not to see how this makes getting DVDs by mail a bit more of a pain. In this age where everything is connected, Netflix is separating things. Netflix has become the preferred way of watching movies by being ahead of the curve at every step. So why would they make a mistake now?
It’s simple really. One of the reasons Amazon.com has successfully killed many brick and mortar book stores is that Internet technology only gets cheaper and real estate only gets more expensive. When it comes to cost, technology beats traditional every time. The bottom line is not only is streaming movies less expensive, it’s getting cheaper all the time. Whereas the Unites States Postal Service has threatened to shut down entirely if they can’t increase revenues. For Netflix, a perfect world would be one where they don’t have to mail their customers anything at all.
So what’s the solution? If they simply got rid of their DVD by mail service, we would all simply go to Blockbuster or Red Box for our DVD needs. You can’t just cut people off. They’ll find another outlet. What you do instead is slowly introduce the concept of streaming. Make it available using a computer. Then make it available for people with X-Box 360, then PlayStation 3, then Wii, finally make it available on Blu Ray players. And make it part of the DVD by mail service. Eventually, even the people who don’t usually use streaming will try it out. They’ll watch a TV show on their computer at work during lunch or something.
Once you’ve got a good audience through a slow ramp up, you can start charging for the streaming and the DVD by mail separately. The result will be the some people will choose the streaming and some will choose the DVD by mail. And some will actually pay more for the same service you were providing. Now that you’ve established your audiences, you can further separate them by making them into two separate entities. This will make even more people choose between one or the other. Since it’s more cost effective to stream movies, keep the Netflix brand and name connected to the streaming service. Give the other company a name that sounds like other failed Internet companies like Friendster and Napster. Call it Qwikster.
Now you’ve got two separate companies with two separate destinies. The Netflix streaming service continues to increase its library. Qwikster will eventually raise their prices due to the cost of postage or whatever other excuse they can come up with. And more people will leave Qwikster. Maybe they’ll have new releases only available on Netflix. Eventually, Qwikster will die. And when it does, Netflix will still be going strong with their streaming service. They’ll have cut their costs, increased their profit and retained the majority of their subscribers. It’s actually a very good marketing strategy.
While I’m sure that Netflix’s streaming service will increase (assuming the studios let them), they won’t include all of titles that are currently available on DVD. Unfortunately, this means that soon there will be thousands of titles that aren’t available unless you want to buy them. It means hundreds of thousands of hours of television and movies that new generations will never see. As a guy who likes old movies, I think this sucks. Worse, I’m not sure that there is any way around it.
I don’t like this latest move by Netflix, but it isn’t stupid. What bugs me is that I’ll still be a Qwikster subscriber until its last day because it’s still the best game in town.
– Jack Cameron