So, Monday morning, after awkwardly fondling my alarm clock until the beeping stopped, I pawed for my BlackBerry on my nightstand to see what I’d missed overnight.
One was an e-mail from Reed Hastings, the CEO and co-founder of Netflix. It hit my inbox at 3:44 a.m., almost as though Hastings had sat up all night wrestling with his tormented soul and at last had to unleash his agony via an e-mail to myself and a bunch of other subscribers.
I’ve written before about my conflicted relationship with Netflix, back when they first raised their prices. Then, I talked about how terribly underused the service is in our home and how I’m paying, more than anything, for the peace of mind of knowing that this catalog of movies are available to me. I like Netflix, even a more expensive Netflix. But I don’t seem to have a whole bunch of time to enjoy it.
Then I get this e-mail Hastings that I barely read with my sleepy eyes. I really didn’t get the gist of what he was saying until NPR mentioned it on my way to work. They would split the company in two, with Netflix doing the digital streaming and a new company, “Qwikster,” taking over the DVD business that gave Netflix its start. The big thing I took away from it was, no price change.
OK, do what you want, call it what you want, just don’t raise my price or drastically change the produce I’m paying for. I’m cool with that.
Ah, but as the day progressed it became increasingly clear that, indeed, Netflix was changing the product. Substantially.
The Netflix site is great. You come up with a list of movies you want to see, and the movies that are available to “Watch Instantly” over the Internet, you can, and the others you can get on DVD. I can work with that. If there’s something in particular I want to pull up – a movie or an episode of Dora the Explorer for my 3-year-old to watch, well, I can do that, too. Excellent. It’s worth what I’m paying.
But with the launch of Qwikster, that won’t really be the case, because Qwikster’s DVD cue will not line up with the cue in Netflix. The sites won’t talk to each other. You go to Netflix, see if they have it. If not (and usually, they don’t), you’ll go over to Qwikster and add it to your list.
It makes what was a sleek and seamless interface clunky and contrived.
Well, we have some theories. Netflix is faced with the innovator’s dilemma. That is, to move forward with its future – online streaming to Xbox, Playstation, Wii, laptop, iPad, etc. users – it has to attack the innovation that made it as successful as it is. You can’t build a new house because your old house is in the way. To move forward with its streaming service, it has to kill its DVD service. That’s why its new Web site is an awkward and misspelled word that no one will remember and that will probably be confused with Napster, which also is practically useless.
(Really? You couldn’t call it “Quickster,” at least?)
Also, Netflix is facing a new obstacle to content: the people who produce it. When the streaming service first started, the content consisted mostly of some old movies I’d never heard of and some documentaries no one wanted to see. Delivering movies over the Internet was a novelty that movie studios were willing to take a flat rate to permit. In short, Netflix paid so many millions of dollars for such and such movies for a year. Now, studios are wise to the gig and they want to be paid per subscriber. That’s where Netflix and the studios have a rub, because not every subscriber uses the services. Studios want to be paid not for their content being viewed, but for their content being available to view.
This is convoluted, but it might have some merit. In essence, the fewer subscribers it has, the less Netflix can be expected to pay for content. If it can keep up revenues while reducing the number of subscribers, it would have more revenue to invest in making more content available.
Further, there’s good cause to kill off the DVD business. For one, the survival of the very service that delivers the product – the U.S. Postal Service – is unsure. The service is hemorrhaging money and discussing cutting back service and closing post offices. Now, we have a one-DVD-at-a-time account, which means that, if we really stay on top of watching our discs as soon as they arrive, we can get through about two movies a week. Not bad. But if the postal service kills Saturday delivery (as they likely should), that kills our ability to see two DVDs a week, too. That would cut down the number of movies I can watch in a given year by 50 percent with no cut in price for what I’m paying for the service. That would be enough to make me cancel that part of my subscription.
DVDs also are a pain. They get lost. They get scratched. You’re dealing with a relatively fragile product that you’re sending into all kinds of private residences where people are treating them all kinds of ways. If you can deliver content without using these fragile discs or a third party – the post office – then that’s preferable. This is also the area of the business where Netflix (or Qwikster, I suppose) that truly faces competition from vendors like Redbox and, well, to a lesser degree, Blockbuster.
Here’s what I want: the movies I want to see – including and especially new releases – available instantly for one flat monthly rate. Hell, I’ll pay Netflix my whole $16 a month and ditch the DVDs if they’ll let me see this summer’s blockbusters over the Internet. It’s worth it to me. I gather it’d be worth it to a lot of other folks, too. It could be a pretty profitable venture for Netflix and for the studios that provide the content that Netflix delivers.
My problem is, I can’t see at all how Netflix plans to get there from here.