Z/Web

I’m not very happy with Netflix today. They have apparently announced their decision to split the company into two businesses, one that does only streaming (Netflix) and one that only does DVDs-by-mail (Qwikster). This fits in line with their previously announced price changes that caused such an uproar earlier this summer.

While I didn’t like the price increase, it wasn’t that big a deal to me. After all, I could merely switch to a lower capacity plan and keep my price the same. A few less DVDs per month, but I can live with that. But now they are really messing things up.

On the one hand, I understand the rational for what they are doing. With postal rates constantly rising and DVDs becoming less attractive than streaming over time, it makes sense that that business will eventually decline. I also appreciate what CEO Reed Hastings says when he writes:

Most companies that are great at something — like AOL dialup or Borders bookstores — do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business.

I’ve heard this argument given against newspapers, for instance. They are too reluctant to truly move to digital delivery because their business model is all about print. Yet print is also responsible for the bulk of their costs. In other words, they have to charge too much for digital to help pay for the declining print. I can foresee that happening with Netflix where streaming ends up funding the expensive DVD rental business, thereby prolonging its life unnaturally. By splitting into two companies, the DVD rental must stand on its own and if there aren’t enough customers for it continue, then it is time for it to die.

That said, I feel like Netflix has given us customers a big “bait-and-switch.” Instead of offering streaming as a separate product from the beginning, they lured us in by making it a free add-on to the DVD service. Now suddenly they want to separate the two.

For me the attraction of the whole business is having both. While I agree the two services are very different from a business operations viewpoint, from a customer perspective the two are complementary. Each has advantages and disadvantages.

I like both services. I mainly like the choice I get with DVDs. But I also like having the option of hundreds of streaming titles available to me instantly.

I really hate the limited playback controls of streaming. Though it ostensibly offers fast-forward, rewind, pause, etc., they work so badly they are nearly useless. It’s very difficult to find your way back to a point in a movie where you stopped (yes, many times streaming has stopped streaming and made me start a movie over from scratch), not to mention the horrors of trying to rewind for five or ten seconds and catch some dialog you missed. Everything you do is God-awful slow and painful, and there are no features like slow motion or frame advance. Controlling a DVD is infinitely better (and I don’t even think DVD control is really that great compared to computer control).

The bottom line is that this decision by Netflix is premature. The reality is that right now, you really need to have both services. There’s just no way one service is sufficient. Instant alone does me little good because half the movies I want aren’t there. DVD alone is limited because I can’t stream the discs to my iPad or watch a film instantly on a whim. There are certain kinds of films I prefer to watch instantly (generally cheap stuff I don’t care about). There are certain kinds of film I vastly prefer on DVD (foreign films, in particular, where I can control the closed captioning and have better rewind capability if I miss something).

Unfortunately, with the services split into two companies, using both will require two separate websites, queues, accounts, and credit card charges. They claim this will make things “simpler” for the customer! Yeah, having to visit two websites to see which has the movie I want is brilliant.

I read someone who said this like going to Wal-Mart and having to go through two separate check-out lines, one for groceries and one for everything else. That nails it. The whole idea of convenience is to get everything done with one-stop shopping.

But the real worry for me is that Netflix clearly is positioning the DVD business as a separate entity to make it easier to sell. It may not be on the auction block yet, but within a few years I wouldn’t at all be surprised to see it put on the market. At worst that could mean the days of DVDs-by-mail are numbered, or at best, that the service will change yet again as some other corporation takes over the business.

Either way, I’m not happy.