The Netflix Issue Queue

It has been a fascinating few months to hear about the moves being made by Netflix. Actions which will surely be scrutinized in future textbooks and business management courses.

Prior to July, Netflix was at a all time high. They were a strong stock, and were the leading provider of DVD's in the United States recently seeing their main rival Blockbuster being ousted. They were beginning to provide a streaming service which allowed streaming of movies to an iPhone, iPad, and virtually any current video game console or most set top television boxes.

Then, approximately early July 2011, Netflix announced they were raising the price of their DVD plus streaming service from $10/month to $16/month. The price hike was a result of Netflix separating their streaming business and DVD business into two separate parts, and maintaining both services would require subscribing to the two services separately. The price hike enraged customers and resulted in approximately 1 million customers cancelling their memberships.

As a result, Reed Hastings, the CEO of Netflix, sent out an email to its customers, apologizing for the recent miscommunication about the separation of the streaming and the DVD business. Explaining the separation would require the rebranding of the DVD business (to be called Qwikster), and the streaming business (Netflix).

To dig into this post, first, I want to explain that the business premise of the rebranding and separation was actually a good idea. Netflix saw the DVD business as a fading industry and realised they needed to create an exit plan when the eventual time came when DVD distribution would be a thing of the past. My belief is that Netflix would maintain the two brands to the point where the DVD business was no longer viable. At which point, they would "dispose" of Qwikster and maintain Netflix at which point should be the thriving brand.

But Netflix made several mistakes. First Reed Hastings explanation confused their consumers more than clarified their stance. It explained that the separation would require that consumers maintain their movie watching on two separate websites and two separate queues without any knowledge or transfer of any information between the two queues. This essentially alienated their customers even more and resulted in an approximate 10 point drop in their stock in a week.

Next, Netflix is going full force into an industry where they would enter in as a weaker player. Netflix's streaming offerings are weak in that they lack variety and do not have access to particular content. They already had a very public dispute with Starz regarding content. As a consumer with a Netflix account myself, right now, Netflix does nto have enough in their streaming service for me to warrant paying additional money for the service.

In addition, the prognosis for Netflix in the streaming service is shaky. In addition to rectifying alienating their customers, in order for Netflix to become stronger, they need to make agreements with the movie studios for content, currently, their content deals are weak, and unfortunately, they are now in a market where they are competing for content with the likes of Apple, Amazon, and Google, competitors with much larger bank accounts, and ties with the major content providers.

So, what happens with Netflix is anyones guess. Even though Netflix does believe that they are right, they first need to apologize to their customers and find a way to lure them back into their business. Their rebranding means nothing and brings no value without their customer base. Next, they need to bring their content to a level that their customers will want to subscribe to the Netflix streaming service.

Can Nexflix right the wrongs they have made in the past two months. I am not honestly sure, but it will be interesting to watch.