Netflix Separates DVD and Streaming Services

[jannyk]

Source: WSJ

Netflix Inc.'s move to separate its movie-streaming business and its DVD-by-mail service failed to soothe many customers' anger over the company's recent price increase. Netflix Chief Executive Reed Hastings announced the split in a blog post Sunday night, saying the move was the undisclosed impetus for a recent price increase that outraged customers and sent the company's stock price plummeting. He apologized for not having given the explanation sooner.

"I messed up," Mr. Hastings wrote in opening his lengthy, apologetic blog post on Netflix's website late Sunday night. "I owe everyone an explanation."

A Netflix spokesman said the DVD-by-mail service, to be renamed Qwikster, will be a wholly owned subsidiary of Netflix. In the blog post, Mr. Hastings wrote that Andrew Rendich, who was chief service and operations officer at Netflix, will become chief executive of Qwikster. He wrote that customers will receive separate credit-card statements for the two services, with the new one billed under its new name.

Subscribers of both services will need to duplicate certain actions like changing credit-card numbers or rating movies, since the two services will operate completely separately, on separate websites.






Read more: http://online.wsj.com/article/SB10001424053111904106704576579903892361530.html?mod=googlenews_wsj

[RUMMYisFROSTED]

1. Fare thee well, Netfkix.

[SharonAnn]

40. I use it more for old TV series and an occasional movie. They have lots of series

on DVD, including the PBS british mysteries and Masterpiece Theater, and I love being able to get all the episodes and watch them in a short period of time.

For example, I watched all the episodes of Lost in May though July. It was wonderful! I didn't get to watch any of the series when it was originally broadcast.

When my husband was in treatment during the last months of colon cancer, I was able to get all the PBS Sherlock Holmes, Foyle's War, Tommy & Tuppence and Midsomer Murders for him through Netflix. He only had a couple of good hours a day but he was able to watch exactly what he wanted to watch! At 3 DVD's at a time, that meant there was a DVD in the mail every day. It was the highlight of the day, opening it to see what it was and then looking forward to watching it later in the day.

I have found nowhere else that has such a complete inventory of TV series for rent. And certainly none that are as affordable.

[RUMMYisFROSTED]

41. Get Roku.

Free PBS, BBC and dozrns of other free channels.

[Ruby the Liberal]

2. It makes sense, as frustrating as it is.

Apparently the studios wanted to start charging Netflix based on the number of subscribers who have access to stream their movies as opposed to a flat licensing fee to purchase a given movie for rental distribution.

You can't blame them for fighting back given that only 9mm people subscribe to streaming where only 2mm are mail only (and a reported 12mm are hybrid).

I would have paid the additional for the hybrid structure, but the whole 2 sites, 2 databases, 2 bills/month is to much of a PITA to justify it.

[Born Free]

30. Postal Service Concerns

In the never ending battle to privatize the postal service, the postmaster general is proposing to change delivery service. Not only closing post offices but also the amount of time expected for delivery. Netflix has to be prepared to see their DVD by mail dry up if people can no longer get dvds twice a week because many people will think it is not worth the wait.


H.R. 1351 , introduced by Rep. Steven Lynch (D-MA), would prevent the financial collapse of the USPS — without closing thousands of post offices, eliminating hundreds of mail processing facilities, delaying mail delivery, laying off 120,000 workers, cutting postal workers’ pay, or ending collective bargaining rights, but first it must be passed and it has a long way to go. The legislation would allow the Postal Service to apply billions of dollars in pension overpayments to the congressional mandate that requires the USPS to pre-fund the healthcare benefits of future retirees. No other government agency or private company bears this burden, which forces the Postal Service to fund a 75-year liability in 10 years — at a cost of more than $5 billion annually. Without the mandate, the USPS would have shown a surplus of $611 million over the past four fiscal years.

The irony of it all is the USPS has the capability to take in dvds, sort and send them out the same day, by using the Netflix database much like the currently do for change of address. This would eliminate the need for Netflix to pick up and sort the dvds and return them to the USPS distribution plant. USPS could do this with any interested company, Blockbuster, library books etc. ( every piece of mail going through the mail gets an id tag which every processing machine thereafter reads, once tagged the computers can track it, including what machines process it - with a few modifications the dvd could get an id tag as it comes in the computer systems would reroute the dvd to the next person while applying a temporary label - it would require a more durable envelope going through the machine so many times.) Of course, no one is interested in creating new business for the USPS, the goal is to make them provide less service which makes it easier to break them up.

[Ruby the Liberal]

31. Another good point.

Rumors are floating that they are looking to eventually get rid of the mail DVD business. Cutting back the frequency of USPS delivery would definitely affect this in a huge way.

Thanks for pointing that out.

[frazzled]

3. People are angry, so they want to make it worse?

I dunno: this was the stupidest business move I've seen in quite a while. And they just made it worse.

Nobody wants to be charged two separate charges and have to visit two different web sites.

[DesertFlower]

4. i've never used on-line streaming.

i'll stay with netflix.

[FreeBillClinton]

6. I think you have it backwards

Netflix will be streaming only. If you want DVDs you will become a Qwikster customer.

[DesertFlower]

15. thank you for that info. my netflix account

is on hold right now. i guess when i reactivate i'll become a Qwikster customer.

[FreeBillClinton]

5. I just canceled.

I only used streaming anyway, but all the publicity made me reflect on their poor selection.

Also, the CEO playing the role of the concerned regular guy just turns me off these days.

[liberal N proud]

7. Canceled the service when they made the announcement.

No chances they would mistakenly bill us for both.

[NoodleyAppendage]

8. Just cancelled after 5 years of service. This is what happens when consumers are screwed with.

I'll just move my money over to one of the movie subscription tiers now.

J

[wuushew]

9. The split is logical from a business standpoint

honestly the rate at which computer storage and capabilty is increasing is far beyond that at which new media or new consumers is being created. 2011 or 2012 is a good time to be doing this.

The physical footprint of server farms is tiny compared to the hundreds of warehouses and attendant employees that must paid for. DVDs break and scratch and the expense replacing them is very real. A fully tax depreciated server still may have substanical cash or capability after being expensed.

Between new smart blue-ray players, media boxes and gaming consoles the number of households that are streaming ready is growing ever higher.

Lastly the future service capabilities of the USPS is very much up in the air.

[Xithras]

12. The network providers capping bandwidth is a very real threat to streaming though.

AT&T's new 150Gb cap can be eaten up pretty quickly by a regular HD stream, as HD Netflix streaming at 720p consumes more than a gigabyte an hour. If you have a PS3 or Roku 2 and can get the 1080p feed, you can double that. When you hit the cap, the overage fees work out to just over a buck for each new show you watch.

This is why Dish Network, who will be announcing their own new streaming service at the end of the month, filed papers with the U.S. government three weeks ago requesting permission to build their own wireless network too. While streaming may be the future, streaming over normal broadband internet may not be.

[Mosby]

21. maybe netflix and the isps will throw down in court

Could be kinda cool to watch. How much you want to bet that all these isp download caps are going to disappear?

[Xithras]

23. They'd lose.

I wouldn't bet a penny that the caps will vanish. Our government, and our courts, are far too right-wing to impose pricing limitations on private companies.

Besides, there's plenty of precedent. I've been around long enough to remember when ALL Internet access was metered. You got X hours free, and then paid money if you exceeded it. Unlimited Internet was originally a marketing ploy by small ISP's trying to dislodge the major content companies in the mid-90's.

Unless they can show some sort of anti-trust action (which will be hard, considering the number of players in the broadband sector), the courts won't get involved.

Do you really think that Dish would be spending billions of dollars to buy bandwidth for their own network, if they thought they could get the same thing by spending a few million in court?

[wuushew]

25. Wouldn't any caps slowly rise anyway?

As a result of gradually improving internet speeds in the U.S.

Surely the bandwith caps are going to increase at a rate faster than the number of hours people watch movies in a day/week/month.

[Xithras]

27. Not without market pressure.

Raising the caps reduces profit, and they aren't going to do that without some external market pressure forcing their hand.

Besides, the cable companies and telco's are still the largest sources of broadband, and both are heavily invested in television entertainment. Neither has any interest in making things easier on a competitor like Netflix.

The reality here is simple. According to Netflix's own numbers, the average customer only watches about 12 hours a month of streaming content. By placing their caps where they are, so that Netflix users have access to around 100 hours a month of streaming HD content without additional fees, the broadband providers can truthfully claim that their pricing doesn't act as a bar to competition. When (and if) the average bandwidth of Netflix users rises later, the broadband providers can simply say "Hey, we've had this cap in place for years and we're under no legal obligation to lift it simply to benefit a third party company." Again, the law will be on their side.

Short of some smoking gun proving that they're doing it to stifle competition, the government won't get involved.

[jannyk]

17. Two words: 'Bandwidth Caps'.

[OneTenthofOnePercent]

10. I've only ever really used the online streaming. Redbox is quicker and cheap for DVDs. .

[BigD_95]

11. I wonder is they will put new releases on the streaming now

Right now only the newest releases you get if they send you the DVD's. Its all older movies online.

[FreeBillClinton]

13. I doubt it.

Most indications are that they are losing content they are allowed to stream, not gaining it. Starz canceled their deal a short while ago.

If they had cut any new deals for more streaming content, now would be a good time to announce it.

[Merlot]

37. most of the starz stuff was mediocre at best

I'm going with the DVDs for now because they don't stream the commentaries and bonus material which I like.

[onehandle]

14. Wow. They ruled this space. Apple, your move. nt

[laconicsax]

16. I love how people get mad when asked to pay for services that cost money to provide.

How DARE a company charge less than $5 per week for unlimited DVDs and streaming!

[jayfish]

20. Even cooler is when people reply to an OT when they have no idea what they are talking about.

Whining about whiners ranks right up there too.

[laconicsax]

32. Are people in this thread not complaining about having to pay for service that cost money?

I'm a Quickster and Netflix subscriber, so I actually do know what's going on. I got the mass email from Hastings explaining the split well before this thread was started, so don't give me the 'don't understand' bullshit.

BTW: Mocking isn't whining.

[jayfish]

45. The fallout from the price increase/plan changes has, for the most part, passed.

The new complaints stem from issuing an "apology" that doubles down on a poor decision and splitting the services into wholly separate entities. Each entity with it's own queue, billing and preference/rating systems. The market agrees. NFLX is down nearly 20% in the last two days and is down to 130.66 from its June high of 304.79

[fishwax]

47. I don't really see people complaining that they have to pay

I see a poster who doesn't think the charge is worth it for streaming and another who doesn't think the charge is worth it for DVDs. Neither position seems particularly unreasonable.

I don't have netflix at the moment, b/c I've got access to an amazing local rental place. If/when I move, though, I'll likely get both Netflix and the other service with the stupid name, since both would be worth it to me given how much I watch.

[Xithras]

35. That's not what the complaining is about.

People are complaining because Netflix is jacking prices while simultaneously making their services harder to use and reducing the amount of content available.

There's also a bit of sadness to it. It's like watching the nice teenager across the street turn into a junkie and ruin his life. Even if you don't know him, it's a sad thing to watch potential be wasted.

For what it's worth, it's not just customers who are whining. Netflix has lost 50% of its stock value since the price adjustment was announced, and it plunged again this morning after this new announcement. Forbes, along with nearly every other business journal out there, is blasting these recent moves as bad for business. An analyst for Morningstar said today that the stocks "best days may be behind it", and there's some chatter about a possible shareholder suit against the company for gross mismanagement. I've seen more than one prediction stating that the stock will be under $100 by Friday. That will be massive, considering that it was at $300 just two months ago. Lots of people are watching their retirement investments evaporate.

I cancelled my subscription and don't hold any Netflix stock, so I have no dime in this game, but it's like a car wreck...as ugly as it is, you just can't look away.

[mistertrickster]

18. Now he owes us an apology for the apology. nt

[JJW]

19. Yet he still charges $ 8 for each service

Sorry, the new movie releases take forever to show up at NETFLIX and the streaming movies are ancient, having been shown on TV a gazillion times.

Just isn't worth it, at all.

[laconicsax]

33. The HORRORS!!!

Imagine someone charging $8 a month for unlimited DVD rentals and another $8 a month for unlimited streaming! It's the most outrageous thing ever!

[SomeGuyInEagan]

22. For television series (HBO, Showtime, BBC, AMC, etc.) their DVDs are still best I've found ...

The amount of television series they have available via DVD is pretty incredible, both for current shows (like "Breaking Bad") or older (like "The Wire") or really old (like "The Avengers"). Much of that is not available from them via streaming, but then again they aren't available anywhere else that I know about.

For that alone - if you like television series - the Netflix-soon-to-be-Qwikster home DVD service is worth it for me. Hopefully, their offerings won't change.

[Lemonwurst]

24. Instead of Netflix streaming, maybe try Amazon and Vudu

Just FYI - rather than Netflix for streaming movies we've been using an internet-enabled (Sony) Blu-Ray player for more than a year now, and we're very pleased.

At first we only had Amazon Video-on-demand as a provider, and they weren't bad. They offered most of the new releases pretty quick, and many times gave you 2 or more days to watch the movie. Best thing about Amazon, they won't shut you off if you're in the middle of a movie and your time expires. You can even keep on rewinding and replaying after the rental period expires, as long as you start it beforehand.

Now, we prefer Vudu because of their huge selection of movies and TV shows, and the terrific HDTV app they've created for Sony players. Vudu also has more than 2000 movies offered at $2 for 2 nights, and yes it's the older movies in here - but it does include some very good movies as recent as 2-3 years ago. And almost all the kids' movies are $2, too.

I can see on our player that CinemaNow (Best Buy's streaming service) will soon be offered, so then we'll have three non-Netflix movie streaming options.

At $4 a pop for standard-definition ($5 for HD), this approach isn't quite as economical as NetFlix. On the other hand, we were Netflix customers for years, and we just couldn't keep up with that List you need to keep updating to get your next DVDs. We also used their streaming service for awhile (on my brother's account) but as noted here, that just had old movies we'd already seen dozens of times on TV, and no new releases period.

I agree that for a physical DVD at a good price, RedBox is hard to beat. But we're a one-movie per week kind of family, and as more streaming services become available, prices and new-release availability might improve even more.

[customerserviceguy]

26. I dumped the streaming-only service last month

Not really because of any pricing issues, but my low-speed DSL wasn't enough to really supply my Roku boxes with fast enough bandwith to really enjoy a movie or TV show. Maybe if we get a cable modem or fiber I'll go back.

[demigoddess]

28. I loved netflix as it was but had to drop the streaming when

they decided to do the higher price for both. I do not have the equipment so watching on my computer is a pain,and my favorite stuff is on DVD only. So I opted for my favorite stuff even though it arrives only one dvd at a time. I hope that as they get out of the dvd business it doesn't mean they will drop the good stuff. It already looks like they are choosing what to keep on dvd.

[DesertFlower]

29. just got this e-mail from Netflix.

Dear

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. 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). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

[Juche]

34. The DVD by mail service isn't worth $8 a month

It takes 1-2 days for them to ship it to you, then another 2-4 days between when you put it in the mailbox and when you get the next one. I can get DVDs for $1 at redbox, blockbuster and the library w/o the wait. Even if I watch movies right when I get them (which I usually do not, I only get 2-3 a month in the mail) it would end up costing me $1 each DVD, which is what I pay to get them in person.

The only problem is they had a good selection by mail. But I'm not going to pay a huge markup for it. I'm keeping the streaming service though. However the selection on that, while good, isn't as good as the DVD by mail. And they broke off with Starz recently so they will lose movies that way too.

In the article they claim their streaming service will expand soon. I hope so, if they devote more energy to expanding streaming at $8/month then in the long run this will work out well, at least for me. But there are still going to be DVDs that I can't get at redbox, blockbuster, local video stores or the library that I won't be able to see since I don't have netflix dvd anymore.

[Codeine]

43. It's totally worth it for me.

If I put a DVD in the mail on a Monday I get the replacement on Wednesday. Even with switching my plan to the one-DVD-at-a-time plan I can still turn around a buttload of content. And Redbox, Blockbuster, and my library don't have the enormous library of foreign and obscure films that Netflix does -- not even close.

[Juche]

46. My queue was never good enough to do that

I can get turnaround time in 2-3 days too, but I don't have a long enough list of movies I want to watch where I am constantly getting movies and putting them back in the mail.

[sarcasmo]

36. Streaming is the future, blue ray will die a slow death.

[Codeine]

44. Cue a million DUers telling you that streaming is impossible

for 99% of the population. Physical media is going bye-bye and people just can't face that.

[elocs]

38. I'm sticking with streaming. DVDs were a pain in the ass for me to find ones I wanted,

having to get them in the mail and to mess with them.

However, at $8 for one out at a time I could easily get 8-12 DVDs a month and that's still no more than a buck apiece and that's still a good value and no reason to get into a snit over it.

I just prefer streaming to DVDs and while getting one out at a time was just a buck extra it was a no-brainer to go that way. I can live with the new deal.

[gulliver]

39. I'll switch to the first competitor with the old Netflix model. n/t

[Blasphemer]

42. Premature changes

Netflix made their move too soon. It makes sense to move to a service that is mostly streaming while having a smaller percentage of users of the DVD service but their streaming selection is far too limited. If everything available on DVD was available via streaming, they'd be in a much stronger position. Anyone who gets content online knows that it is impossible to find one legal source with everything you're interested in. Whichever company manages to stream (and/or make otherwise downloadable) the most impressive amount of content will win the race for market share.

[alarimer]

48. Who wants to manage two different accounts?

And no way to check what is available on streaming from the DVD site and vice versa.

Terrible idea.