Netflix & Qwikster: The Biggest Gamble of 2011

(image from flickr user ASurroca)

On Sunday night, DVD rental/streaming giant Netflix announced they will be splitting the company in half, separating DVD rental and instant streaming. As if that concept wasn’t confusing enough, CEO Reed Hastings released an email (and blog entry) to Netflix customers that opens with the line, “I messed up. I owe you an explanation.” As if that isn’t going to cause uproar? My, my, this has been a busy week for Netflix.

Hastings explains that instant streaming will retain the Netflix name and operate exactly as it has in the past, but the DVD rental aspect will be from here on out called, “Qwikster” (not to be mistaken with the Twitter feed of a pothead who thought of the same name for his account.) These companies will operate independently, having two separate entries upon a monthly credit card statement. Qwikster will also start allowing a game rental upgrade, as that has been an expressed interest by consumers for some time now.

The huge drawback here is largely that consumers would be dealing with two separate companies and also that the ratings and recommendation system would now become redundant. For instance, if you gave a movie four stars that you streamed, Qwikster would not automatically be able to recommend similar movies. This means customers spending so much more time looking through ratings that many may find the lack of intuitiveness inconvenient and annoying.

Netflix CEO Reed Hastings (image from flickr user BenLucier)

Apologizing and talking about making a mistake is not exactly the best time to launch a new product, Mr. Hastings! Netflix morale has been at an all-time low since the price increase back in August, although this event does clear up some questions regarding the price change to begin with. On the new pricing system, streaming and DVD rental were two separate packages and no longer in a combination package. Looking back, this seems like it was clearly done in preparation for the switch.

The backlash from this letter and the company news has, if possible, lowered public opinion about Netflix even further. But before we get out our pitchforks, there are some pros to the plan. Hastings clearly sees DVD rental as a dying horse, and anyone in media or production would likely agree. Streaming is (and has been) the future of how we watch movies. Hastings simply didn’t want to keep a dud attached to his company after it became obsolete. I would bet his plan is to ride out Qwikster as long as possible, but then when it loses steam, let it crash and burn — without undue harm to Netflix streaming. This business plan makes sense.

However, this was some of the worst PR the media has seen this year. Netflix should be in constant communication with customers, and under no circumstances should the public find out about something concerning consumers before the consumers themselves. Secondly, the casual tone of the letter from Hastings smacks of indifference. This is not the time to establish a non-formal relationship with an audience on the brink of unsubscribing.

It is too soon to tell if this will lead to the end of Netflix, but this certainly opens up the opportunity for competition. The Netflix brand has certainly underestimated the intelligence of their consumers by thinking that a short, impersonal note would be enough to bring happy compliance. Perhaps explaining in detail the merits of this business route would have been the better option.

Renee Mitson I love blogging and social media. I obsess over tech, interior design, memes, cycling, and ridiculous fashion trends. From Providence, moved to Boston, Toronto is next this fall! Twitter: @reneemitson

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