pyehouse
11Oct/110

Poor Qwikster. Netflix Hardly Knew Ye.

Netflix logoSo, as reported on TekGoblin, Netflix has now renounced their pronouncement announcing Qwikster, the spinoff which would have split the DVD rental business off from the streaming business. I had written previously about the Netflix saga and as before I don't think Netflix has done themselves any favors but I also don't think they are dead in the water. I also received one of these automated emails and my first thought was that perhaps the Qwikster Twitter guy was just asking for too much money.

If nothing else, I personally like the fact that they listened to the customers complain about now having to split activities across two sites and have decided to keep things in one house. From a business perspective though, it certainly does come across as being indecisive, which is never a happy-maker with the shareholders. It's the right decision, but it shouldn't have to have been made as Qwikster should never have seen the light of day. Still, that's easy to say in retrospect.

Initially I took the message, particularly the announcement of no new price changes, to be a positive thing, perhaps an indicator that they had secure new licensing to replace Starz! once it goes away, but the more I think about it, the less sure I am of this. If they had secured new licensing, they would want to shout about it, not obscure the fact. The rest of the email discusses addition of new content now, under existing licenses. It doesn't mention anything about what will be available in a year or two. And then there's the whole Qwikster flip flop.

On the one hand, eliminating Qwikster before it actually had a chance to start was, as I said before, the smart move. Frankly, it should have been done before Qwikster was even announced. No one outside of a board room should have ever heard of it in relation to Netflix. Then, when it was announced, customers got angry. It was bad enough that prices went up but then to force them to maintain essentially two lists of content to view and rate was just silly. Even from a technological perspective, the two sites could have shared accounts and data. There was no need to tell customers they couldn't manage lists in one location. It was a stupid move. But they addressed that with Qwikster's death, so kudos earned and given.

But the rapid switch in strategy makes one wonder why the sudden change in direction. Again, at first I took it to be a good sign that Netflix was willing to listen to customer dissatisfaction with the Qwikster split and do something about it. But then if it made sense for the bottom line to do the split and now they have decided against it, what reasoning did they use? Because customer dissatisfaction with the split mostly seemed centered around managing those two queues, a technological issue that could easily be addressed without giving up whatever economic incentives the split would have provided. Yet now those incentives don't seem so important anymore. I can only think of two reasons.

One is because there are new licensing agreements coming soon and so they plan to try to stir up as much goodwill as possible to win back lost customers in order to make the new content available to as many viewers as they can. As a result, they keep the DVD rental business within the fold and continue to play nice with those who make use of the service, in order to quell the discontent. That would be swell but then why keep us in the dark about it? Why not delay the Qwikster launch until they have the new licensing wrapped up and can announce it alongside Qwikster's death. Instead, we get an email telling us prices won't be going up and oh, we've added a bunch of new content lately or will add more soon. That new content is simply from existing licenses. It doesn't represent the premium content which Netflix is tussling with Starz! over. (Or was until the deal went bust) What of that?

The other reason why Netflix might want to bury the idea of splitting the DVD business out is because they believe they may need it to survive. With negotiations dead with Starz!, the Netflix team has no doubt been courting other content providers to find more premium content to show viewers. If they had no luck, they would need to stave off elimination until they could get someone to work with them on terms that would not further alienate their base due to price hikes. In this, they would look to become the next Apple, arm twisting content providers into a more consumer friendly model with consistent pricing at lower rates than the content owners want to accept. But if they couldn't find anyone willing to license to them on such terms, they would have no choice but to keep the DVD business around to keep profits up.

The interesting thing is that in this second scenario, we wouldn't necessarily know it if it happened. We would see Qwikster buried soon after it was announced, we would see some PR come out about new content now available (but under current licensing), and then we would see... nothing. Nothing further would need to be said because the negotiations would be taking place with various content owners. And if they won a new license, you can bet we would hear it trotted out and used to show that Netflix is a great bet. But if they failed to secure new licensing, you would continue to see the DVD rental business pursued relentlessly, with perhaps an apology concerning not being able to transform the industry or something to that effect.

I'm an avid Netflix user. I like it and hope the model thrives, especially because it's pretty friendly to Mac users what with Netflix built into the AppleTV. I hope they secure new content licensing. I don't know if they would survive if new premium content required a higher tier of pricing or some sort of pay-per-view option, as that is ground already well-tread by other services. In some respects Netflix is attempting to commoditize movie and TV programming, making it something much less expensive than it is elsewhere and far more accessible. I think this is to be commended and insofar as Netflix continues to be a player in this arena, I'm rooting for them. I just hope they start showing some consistency.

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