Posts Tagged ‘Netflix’

The perils of ‘free’ … Netflix tries to divide and reconquer … bet the under.

September 28, 2011

Punch line: Netflix tried to ‘seed’ their steaming video business with an irresistible offer: free.  But, customers revolted when asked to pay.Now, trying to be clever, Netflix is trying corporate fission: breaking into 2 parts.

I’m betting the under …

* * * * *
Excerpted from the Atlantic, by Megan McArdle:
The Qwikster and the Dead

Netflix admits that they’d really messed up the transition when they announced the end of free streaming, and that in order to fix it, they  decided to more decisively split their DVD and streaming services.

The DVD part will now be called “Qwikster” and have its own website; the streaming service will retain the Netflix brand.

The internet’s collective reaction sits somewhere between foaming rage, and an enormous collective “What the hey, Netflix?”

It’s so bizarre.. What problem does this solve?

Netflix does have a huge problem.

The company never wanted to be in the mail-order DVD service long-term; it’s not a good business.

Redbox was threatening to carve off the casual users, leaving them with the high-traffic movie buffs who don’t make them money.

Plus any idiot can see that the future is likely to be in painlessly streaming movies over the internet, not putting physical discs in little envelopes and mailing them.

The fact that the Postal Service is near bankruptcy tells you a lot about the viability of business models based on mailing things.

The problem is that they tried to build their streaming service by giving it away for free, as an add-on to their snail-mail service.

This was a good way to add customers.

But the history of the internet indicates that once you convince people something is supposed to be free, or close to it, you will have a devilishly hard time getting them to pay for it.

Unfortunately, users had been conditioned to expect unlimited free ice cream; they didn’t like having to pay for it.

Subscriptions dropped instead of rising.

Netflix stock went into a  rapid decline.

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So I understand that Netflix was in a bad place.

But I don’t understand how Qwikster solves any of these problems.

It doesn’t improve their bargaining position with the content providers.

It doesn’t soothe angry customers who don’t like having to pay for stuff they used to get for free.

Thanks to Tags for feeding the lead.

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