This morning, Reed Hastings (CEO, Netflix) announced that amid the backlash over the recent pricing change, Netflix would be split into two brands: Netflix (online streaming) and Quickster (DVD delivery).
In the announcement he said:
Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast – it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further.
I think this is the wrong move.
Three important facts about Netflix’ business:
- Netflix currently captures a very small amount of America’s spending on media consumption (let alone the world’s!)
- Media consumption will change dramatically over the next few years towards streaming from traditional physical media and broadcast delivery
- Netflix is the best positioned player in this new space
Netflix’ top priority should be solidifying and expanding its position in the media streaming business.
Reasons I think splitting up the company is inconsistent with that goal:
DVD users will switch eventually. One day in 2021 people in Iowa are going to realize it’s a pain in the ass to deal with discs and broadcast schedules. As Quickster subscribers, their business isn’t necessarily a lock for Netflix.
Existing customers value DVD service. The Netflix DVD collection is dramatically more extensive than their online offering - it has practically everything ever made. While I turned DVD service off the first day I could, around half Netflix’ customer base subscribe to a combined plan. For those customers, the Netflix value-proposition diminishes significantly, as they have to manage their media consumption using two different services. Having the services combined meant that every time I search for a movie that isn’t available for streaming Netflix can use the opportunity to tell me that they have it on disc. Even if I’m not going to upgrade me account it reminds me that Netflix has the biggest catalog of movies and that they’re working on making it all available for streaming.
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