Greedy When Fearful

Today Netflix (NFLX) announced its spinning off it’s DVD business into a new service called Qwikster. I think this is such a huge mistake, I have to send Reed Hastings a letter even though he will never read it, but, hopefully you will. Here’s the letter:

Dear Reed Hastings,

I am ecstatic that you do not want to follow the fate of America Online, and are self-aware that you easily could. You do not display the type of arrogance of most CEOs who think they are immune to change and this gives me more assurance of Netflix’s survival because “Only the paranoid survive.” You respect your customers enough to alert them of a rate-hike. Comcast has never given me such respect and every month my Comcast bill is slightly higher with no explanation. However, you are forgetting two extremely important points with your latest decision.

1) Brand power is your most important asset and makes it much easier to raise prices on your customers.

2) American’s have an extremely short term memory, react irrationally short-term, and don’t even realize the “new” prices are really 2005 Netflix prices but with better content.

Most customers have no idea that due to archaic movie studio laws a new release on DVD is cheaper than a new release digitally and by going streaming only they are giving up access to most new releases.  It’s $4.99 to rent one new release in HD on iTunes. You clearly understand this, and that’s why you have said you aren’t interested in acquiring new releases for streaming, but are focusing on older, back-catalogue, long-tail content. Your customers would have come back as there is no cheaper alternative for the ultimate new-release DVD combo combined with  back-catalogue streaming content.   However, by renaming Netflix “Qwikster” you have diluted your brand and made the service more inconvenient and confusing for customers. You have turned a temporary problem into a permanent one. Two separate websites? No synchronization? I want to be able to have that movie in my DVD queue until the “watch now” button shows up right next to it. I want to think about movies, not how they are delivered to me. Who cares about the type of box a package comes delivered in? These two packages shouldn’t be sold by separately branded businesses as both brands sell the same product, video.

The beauty of the name Netflix was it worked two ways. It explained that you could rent DVDs (flix) over the Internet. It was forward looking,  because it also worked even better for streaming flix over the ‘net.

As we all know, physical media is obsolete but due to horse and buggy content owners, I’m sure in 2021 we will be saying the same thing just like we did in 1999. Physical media was your largest Warren Buffet Moat. If it puts Netflix into a better economic strategic position by having two separate companies, I understand. But, why not borrow from Coke instead of the obsolete Napster and separate the DVD business into “Netflix Classic.” You already share the same color scheme and I always drink Coke with my nachos while watching movies. Please keep your strongest asset, your brand.

I, along with my friends and family, are extremely excited that video games are finally coming to Netflix, err..Qwikster. Just imagine if you would have announced that you are increasing prices because video games are now included as part of the service. Customers, like myself, would have actually felt as if they are getting more for their money.

I am an extremely happy Netflix customer, shareholder (along with my 1 year old son), and have yet to find a better alternative to Netflix. I’m not cancelling, and I’m not selling, but your initial instincts were right, and you should have stuck to your guns. It is a marketing problem, not a pricing problem. But, Qwikster only makes it worse. Please bring back the classic brand everyone loves. Netflix is the perfect name, Netflix is Coke. Qwikster is 2011’s New Coke.

Sincerely,

Monty Singleton