Netflix kills Qwikster, backtracks on DVD spinoff

28 Comments

Netflix (s NFLX) came under a lot of heat last month when it announced that it would be separating its DVD service from the rest of its operations and renaming the business Qwikster. So now, after hearing more or less unanimous disapproval from users, analysts and investors, the company has decided to backtrack on those plans, and will keep DVD-by-mail a part of the Netflix brand and website.

Months of missteps

The debacle first began way back in July, when Netflix announced a change to its pricing that separated its $9.99 DVD and streaming plan into two services that cost $7.99 each. That led to an effective price increase of 60 percent for users that planned to continue subscribing to both services, which was met by wide-scale disapproval.

After announcing an update to its customer forecast, which lowered its expected subscriber count by a million at the end of the third quarter, Netflix CEO Reed Hastings then apologized and announced that the company was spinning out its DVD service as a standalone business and re-naming it Qwikster. That would mean a whole different website, billing relationship and ratings system for customers. The Qwikster plans made Netflix’s situation even worse, leading to even more customer unrest. (Not to mention ridicule by late-night comedians like Conan O’Brien.)

A step back, and an apology

Netflix is now announcing that it will not go through with those plans after all, and that it will continue to have a combined streaming and DVD-by-mail service and offer those services both through Netflix.com. Users will continue to have one monthly bill, and their ratings and recommendations will carry over between the services as they always have.

The move is a concession to those who questioned the wisdom of Netflix’s recent plans, but also an acknowledgment that the company harmed its brand and relationship with users through poor communication and an apparent disregard for what customers actually liked about the bundled service: simplicity. By splitting the services and brands, Netflix added an unnecessary layer of complexity to using both DVD-by-mail and streaming. CEO Reed Hastings admitted as much in his statement issued with the press release:

“Consumers value the simplicity Netflix has always offered and we respect that,” said Netflix co-founder and CEO Reed Hastings. “There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.”

But is damage already done?

While most of Netflix’s recent problems have been self-inflicted, competitors are hoping to take advantage of customer disapproval of the announcements made over the past few months. Dish Network, (s DISH) for instance, unveiled a new streaming and DVD-by-mail offering called Blockbuster Movie Pass that it’s making available to its pay TV subscribers for an additional $10 a month. Amazon (s AMZN) has doubled the number of streaming titles available for its Prime Instant Videos subscription service, and will likely see an uptick in video users once its new Kindle Fire tablet becomes available. And Hulu has been talking up its subscription service, saying that it expects sales from Hulu Plus will make up about half its revenues in a year.

Will Netflix’s decision to halt its Qwikster plans win back customers or get them to stick with the service? Or has the damage already been done, and will they look for alternative services elsewhere? Let us know what you think in the comments!

28 Comments

Bbarbie

I cancelled Netflix, Blockerbuster has the same old 9.99 DVD and unlimited streaming plus you get video games and exchange for movies at the store.

facku

Hate Netflix. Hate Netflix CEO. Can they just go out of business already?

Jaime

i feel like netflix should have had respect for their existing customers and they should have grandfathered their existing customers and jacked up the price on new customers like most companies do. That is why I’m disappointed with netflix.

Don

Here is how I see the recent decsions of Netflix. The reason for the price hike is obvious, once you have established a consistant maket share… raise the price. Then too further drive the bottom line, cut expenses ie purchasing, managing inventory and shipping DVDs. I think the whole idea was to divest the unwanted DVD service so that it could fail and shutdown without affect on main Company. The streaming service could then be operated with less expense, overhead and of course fewer employed people cutting into the profits.
Corporate Common Sense.

Darlyne

I love it. Two websites was a really bad idea. I save money from my old plan and can give a gift of streaming for cheaper than I could before! Netflix is giving their customers more choices.

Robert Smith

I have been a customer in order to rent Blu-ray and catalog titles. Streaming is an interesting idea but the quality is terrible so far. My real complaint with Netflix has been the degradation of the Blu-ray and catalog titles in the last year. The constant talk from Netflix about being a streaming company just rubbed me the wrong way. “Qwikster” was the last straw. I dropped the service and signed up with Blockbuster, and have thus far seen 3 Blu-rays that Netflix wasn’t carrying. I agree with one poster here that this has caused me to open my eyes about what my subscription services were really worth.

Thad McMullen

I’ve been a Netflix customer since 2004. First the DVD service – then the streaming/DVD combo, and now I’m back to streaming only with the 60% price increase. Although I don’t like the price increase and Netflix management/leadership appears lost right now – it is still the best value for the money when compared to the competition.

PB

I’m willing to wait 6-9 months for DVDs to become available through Netflix so I don’t have to pay $2.99 per movie at Amazon Prime. The Prime service is no better than Netflix (worse, actually), and Amazon doesn’t have a rental service. Even with the price hike, Netflix is still orders of magnitude cheaper than other services.

SnappyDan

Netflix is still a good deal, but there are less expensive ways to get media. I record movies off of THIS (free wireless DTV) and borrow movies from the library. Oh, and I pick up a bunch at “Big Lots” for $3 a pop. So, I don’t need Netflix, cable, satellite, or even a broadband connection.

Scott Jensen

As I’ve said in previous comments to previous blog posts about this, this will go down as one of the classic marketing blunders. It will soon be taught in marketing college classes alongside the Edsel, McLean burger, and New Coke.

The failure here is really market research. For a company this size, they had to have had done market research about this move. If they didn’t or if market research warned what about what would and did happen, the entire top management should be fired, starting with the CEO. If they did market research and it gave the green light, the brass of the market research department at Netflix should be fired.

Properly done market research should have pointed out what would and did happen. Seriously. That’s one of the important jobs of market research.

My guess is that market research at Netflix is filled with “yes men” that are afraid of telling the emperor that he’s not really wearing any clothes. [Kind of like what’s happening in Obama’s White House right now.] This especially happens when the CEO thinks he’s brilliant and argues with anyone that doesn’t think his ideas are brilliant. An incompetent head of market research will not speak up and take on such a CEO but will let him have his fantasies. An incompetent head will even manipulate research to show agreement.

This is where the Board of Directors needs to come in and find out who was really at fault and then fire that person to send a signal that such will not be tolerated in the future. Their focus should be what market research did and didn’t do. What market research advised and didn’t advise. What research that market research did and what it said. If it predicted what did happen, where did the message get lost? If it predicted blue skies and sunshine, who was the idiot that designed that research and then they only need to decide which skyscraper roof that moron should be thrown off of.

Streaming is the future for content delivery. That’s been long established. Where Netflix went wrong is not offering the same library when splitting their services apart. Yes, I know the limitation streaming has in regards to DVDs, but that’s an obstacle that should been overcome before doing this move. If it had been done, this would have been a perfect move to make and no customers would have been upset.

But even if the two libraries were the same, I would never have recommended spinning off the DVD-by-mail. I would have instead simply made it as independent of an operation as possible within the company. Moved it to its own building, if not different city. In their job contracts, I would have assured all employees that went with it that they will have a job back on the streaming side once the DVD-by-mail side finally dies out.

Phil Hendrix

Qwikster – the new “New Coke?”

A monumental failure, the introduction and withdrawal of Qwikster have undermined Netflix’ business and reputation. Though most new products fail, few have generated as much controversy, prompted such a massive reaction among customers, or forced such a stunning “mea culpa” and reversal by a market leader. Unfortunately, Netflix and Qwikster join Coca-Cola and “New Coke” as the poster child for “new product debacles.”

The irony is that this could have been avoided – see “Why New Product Projections Are More Often Wrong than Right” (http://bit.ly/riYtmi) and “10 Questions that Determine the Success of New Products” (http://bit.ly/roVG6M).

Having said that, Netflix execs deserve some credit for moving quickly to acknowledge their mistake and stem the damage. It took Coca-Cola three months to reverse course on New Coke and reintroduce Coke Classic.

Dr. Phil Hendrix, immr and GigaOm Pro analyst

Dylan

This just reaffirms to me that the commoditization of “movies” is becoming a real thing. People simply will not pay the prices they were once willing to.

Commoditization is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition and from monopolistic to perfect competition.

Amit Rathore

Last month I downgraded my Netflix plan to streaming only, and decided to try out Blockbuster’s service. And I’m a Netflix shareholder. The difference between the two services, however, is like the difference between using an Apple product, vs. using a Microsoft one. The Blockbuster website is one fugly piece of work, with no consideration of the customer experience AT ALL. Life is too short to deal with that kind of garbage, and I’ve now switched back to Netflix, and my plans are back to where they were. Like someone else said, it’s not much of a price hike in dollar terms.

KL

I too switched to Blockbuster, tired of Netflix flip flops and LOVE blockbuster !! It is so nice to get a movie 30 days before Netflix !!! Blockbuster is great !

Joe

It doesn’t even matter. The CEO’s will be in jail soon for this stock scam as the SEC has now stepped in and is demanding that Netflix show it’s churn numbers. Once this happens this whole stock scam begins to unravel.

Shenan

I agree with the few people who think that some have overreacted over this whole thing. Although I guess it’s a good thing that they did, because this Quickster thing was a pretty bad idea, and the overreactors made Netflix go back on that decision. Their main error was to move too fast too soon, and not communicate properly. They should have started by raising the combined plan to $12, explaining that they had to because the content owners were asking for a lot more money, then they could have said, “but out of our concern for our customers, we now offer the option of going streaming-only or DVD-only for $8 each.” They would have looked like heroes, and this would have given them an opportunity to fully quantify how many people were interested in the streaming-only or dvd-only options. A couple of years down the line they could have raised the combined plan price or eliminated the combined plan “discount”. Oh, and they should have kept the whole Qwikster and splitting the business idea to themselves for now.

Wesley G. Skogan

I have always assumed that NF separated the two businesses, setting up a separate name and billing for the DVD side, because they plan to spin it off to some investor group in order to focus on what they expect will be the “high value” side of content delivery.

Barbara Eyre

Netflix had just about severed its own foot before backtracking on the Qwikster decision. Just like with eBay and Facebook, why were they “fixing” what wasn’t broke to begin with. Companies need to stop looking for the next quick millions and just be happy with what works and makes them popular with their customer base. Stay in business for the long term, not the quick buck.

Sally Jo

So tired of listening to the cheapskates complain about Netflix. Next time you go to the movie theater compare its value to Netflix.

Jesse

It’s this…a lot of people complaining were converting from free [torrents] to Netflix. The $10/mo was more like a “convenient fee”. $16 is too high when compared to free, but $10 is the “golden spot”

monal

has the leadership of this company gone brain dead in the matter of 3 months?? I expect some heads to roll over the PR disaster this company has put themselves into with decisions they can’t even stick with

Travis Henning

Personally I don’t understand all the gripping about the price increases. Were they significant? From a percentage basis, yes. But overall, the value is incredible. For $20/mo you get unlimited streaming and 2 DVDs at a time. We haven’t had cable or sat service for 6 years – strictly Netflix and Hulu, but my parents pay $90/mo for satellite and outside of sports and news, they use their Netflix plan more often than they watch cable or sat programming. I guess it boils down to each person’s perception of value.

Travis Henning

I do agree that they way they handled these last few months has been a complete disaster from a public relations perspective. It looks like management can’t make up their mind.

Tyler

I put my Netflix subscription on hold when they announced the 60% price hike then cancelled completly after they announced the Qwikster spinoff. They only way Netflix can get me back as a customer is if they reinstate the $9.99 streaming/DVD combo plan. Hell, it’d even rejoin if they made the combo plan $12 but to go from $10 to $16 is ridiculous.

Greg

Damage was done when they jacked up the price. They put themselves. They put themselves in the same group as everyone else, so why not use everyone else?

JohnB

For me, the damage has already been done. It’s a good thing, though, as the misstep reminded me I was unquestioningly giving netflix money without being a responsible, discerning consumer.

Ric

Yeah perhaps, but they are still the best value in town and no one can compete with service for flexibility and price.

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