Netflix framed this morning’s Qwikster announcement as an apology, but the move appears to have irked subscribers even more than its recent price hikes.
In a Sunday night blog post, Netflix CEO Reed Hastings apologized for how the company informed its users about plans to split pricing for its streaming and DVD rental businesses, but then went on to say that the DVD rental option would become a standalone business known as Qwikster; different names, billing, and Web sites.
This separationpaying more and keeping track of two separate accountsappears to be most bothersome for users who commented on Hastings’ blog post.
“I kept both my Streaming and DVD services, against my better judgment, because of the convenience they offered as a combined service,” wrote David Cowing.
“Your best customers are those like myself that use the DVD AND the streaming services,” said David Isaacson. “But those are the very customers that you are alienating. You know what consumers like? Large selection, customer service, and reasonable prices. You are now falling down on all counts.”
“I don’t understand why I will now have to go to 2 seperate websites to manage my [queues],” wrote Tellier Killaby Booth. “The only reason that I have both services is because 1/2 the things I watch aren’t available yet on streaming. (and perhaps they never will be?)”
The available selection on Netflix streaming seems to be the main issue here. As PCMag analyst Sascha Segan pointed out earlier today, very few people actually want to receive physical DVDs in the mail. If Netflix’s entire catalogue of movies were available via streaming, that’s probably how most people would access their filmsparticularly since Netflix is now accessible through so many Web-enabled TVs, game consoles, Blu-ray players, and more.
Netflix has also repeatedly said that streaming is its future and that DVDs by mail will one day be a thing of the past. But in order to get rid of DVD rentals, Netflix has to bulk up its streaming library, and that’s a costly endeavor. The company must negotiate streaming rights for all movies with the studios that produce them. Sometimes that results in big wins for Netflix, like the full season run of Mad Men, but sometimes it backfires, like Starz announcing recently that it will pull its content from Netflix streaming by February 2012.
Those deals aren’t cheap, and Netflix in July announced that it would separate pricing for streaming and DVD rentals; $7.99 per month for streaming and $7.99 per month for one DVD at a time, or $15.98 for both, compared to $9.99 before.
In a Sunday blog post, venture capitalist Bill Gurley said the move was a way for Netflix to avoid being charged licensing fees for users who don’t even use its streaming service.
In recent years, studios have started asking for price per month, per user. “With this new term, Netflix could not afford to pay for digital content for someone who wasn’t watching it,” Gurley wrote. “This forced the separation, so that the digital business model would exist on it’s own free and clear.”
“Could Netflix have simply paid the digital fee for all its customers (those that watched and not)? One has to believe they modeled this scenario, and it looked worse financially (implied severe gross margin erosion) than the model they chose. It is what it is,” he continued.
But why the branding change? In his own blog post, Hastings said “we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”
Qwikster will also incorporate video game rentals, though that does not appear to have appeased the masses. Some were confused why Netflix would want to leave behind its popular name.
“If anything, use subdomains and call the service Netflix Snailmail and Netflix Streaming. Your most important aspect is your brand,” Benjamin Hutchins in the comments.
Others thought Netflix was only thinking about finances and not customer relations. “This new move is to make things easier for you. To be perfectly blunt, this move sounds like the idea of an out-of-touch management who doesn’t use the technology themselves and are therefore only looking at a budget when making this decision,” wrote Beth Tucker Long.
Speaking of branding, Wired notes that while Netflix has secured qwikster.com, the @qwikster Twitter feed is already taken by someone known as Jason Castillo.
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