Netflix to compete with... Netflix (OR: Hasty Hastings)

I remember before the 1997-98 Asian financial meltdown (known locally as "the IMF Era"), a time when many Korean corporations foisted upon us whatever the heck they wanted us to buy, irrespective of whether it was ready for primetime and worth the money we, their captive audience, had to pay in the trade-protective South Korea of that time.

It was as if the various chaebol were working off of Dana Carvey's "Grumpy Old Man" character on Saturday Night Live: you're going to pay high prices for low quality, and you'll like it! (Um, we were the Grumpy Old Men who accepted our fate in this analogy that I'm beginning to realize was ill-conceived, and the chaebol were making us Grumpy Old Men who accepted our fate... Um, just pretend you never read this paragraph, and don't watch the video.)



I was reminded of late-20th century Corporate Korea's ham-handed and tight-fisted approach to the goods- and services-buying hoi polloi when I read the latest in the possibly suicidal public relations fiasco that is unfolding at Netflix.

In this 2010 post, I explained why I had earlier switched from Blockbuster to Netflix, largely a protest when Blockbuster no longer let me turn my mail-in movies at one of their brick-and-mortar stores in exchange for a new (and free) DVD to watch while I waited for the next to be mailed in. Netflix enticed me with their budding online service. As its offerings grew, so did my love for this service.

The problem is, everybody loved this service, which was only $2 more than the basic service of DVDs-only. Ultimately, Netflix decided it was unsustainable and they announced in July that henceforth (from September) the mail-in DVD service and the online streaming service would be separate services on your bill: $8 for either or $16 for both. This was a 60% markup for those who had been enjoying both at $10.

The cinemaphilic masses were ready to revolt. Many complained that they were going to quit Netflix altogether in protest (but like me with Blockbuster, they would realize they had few options). When Netflix lost the rights to stream Starz, many rightfully complained that they would be paying more money for less service.

But I decided to stick it out. I like Netflix on my iPhone (I also have a Hulu+ subscription, also $8), and between the two, it makes up for not having cable (there's no app for that).

But then came yesterday's email from Netflix CEO Reed Hastings (a copy of which can be found here, though it lacks the personalized "Dear Kushibo" right before "I messed up" and "I owe you an explanation," which was changed in the blog to "I owe everyone an explanation").

In a nutshell, Mr Hastings said that he did a poor job of explaining to all the Netflix customers why they were raising the prices sixty percent, going into some detail about how DVD mail-ins and streaming services were very different services and the latter never really worked at $2 a month add-on. Please understand.

So far, so good. You had me at hello. Yadda yadda yadda. Yes, despite being a starving grad student on a shoestring budget, I got where they were coming from. I accepted it. It was merely the cost of three cups of brew coffee at Starbucks or Coffee Bean which I probably shouldn't drink anyway because I tend to add too much sugar... so they were kinda sorta doing me a favor.

But then I got to the second half of the letter:

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.

Okay, so let's get this straight. We raised price because we had no choice, and then the public revolted because they didn't understand. So to make them understand, we're going to add insult to injury by splitting this more expensive service into two different websites, thereby stripping the service of the convenience of being able to coordinate your movie-watching preferences between mail-in and online.

Whiskey tango frack! Are they now daring us to stay with Netflix?! The ability to so easily choose mail-in when something is not available through online streaming, or vice-versa, is one of the greatest things about Netflix. I'm sure they have sound technical reasons for splitting them in two, but this is being penny wise and pound foolish: I'm sure there are a lot of people who have just decided to write them off.

Let's say I want to watch the movie Poetry (Shi in Korean). Right now, I go to netflix.com and look it up and see if it's there. Oh, lucky me, I can watch it online. If it weren't available online, I'd probably add it to my queue. But if the two are split, then I'd go to the online service first (still netflix.com) and see if it's there. If it is, then goodie for me, I can stop. If it's not, then I have to go click on to qwikster.com, log in, and then go through the process of looking for the same movie.

At the risk of sounding like the precious little lotus blossoms I'm always grousing about, that's too much work. I don't mind pay $6 more for quality service (seriously, when they added the online streaming virtually for free, I thought they were on crack), but jiminy frickin' Christmas, don't make it harder for me. What's to stop me from axing my mail-in service altogether and going with Blockbuster, which seems to have a few titles you don't? Yeah, I came to you, Big Red Envelope, when I was jilted by Blockbuster, but maybe I should consider going back to the blue envelope. They've suffered long enough. (Too bad Netflix's mind-numbing screw-up didn't happen before the Blockbuster stores went under.)

Yeah, yeah, this will allow them to offer greater service, like video games. But I don't care about video games. They are a vortex sucking all time from my life, which is why I avoided connecting the Wii all last school year.

So, in conclusion: Netflix is punishing us for their mistakes. This is the straw that broke the camel's back for a lot of people, possibly including me.

Boy, I do sound like a grumpy old man.

...

Netflix can't compete with Netflix

Dammit! My Netflix is about to get 60 percent more expensive. While I was paying about ten bucks for unlimited streaming of movies and one DVD out at a time, I will soon have to pay about sixteen bucks for the same service:

In a reflection of the more challenging economics, the company faces to acquire digital content and ship DVDs, Netflix announced Tuesday that it will no longer offer combined DVD and streaming plans. Instead, the company's more than 22.8 million U.S. consumers will have to pay separately for each service.

Unlimited streaming will cost $7.99 per month, as will taking out one DVD at a time. The combined cost is $15.98 per month, a huge price increase for those who currently pay $9.99 for a combined streaming-plus-one-DVD plan.

In a blog post, the company positioned the price increase as a way to bolster its DVD business, which executives had previously deemphasized.

"Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs," the corporate blog post said. "Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering."

Perhaps I'm spoiled. After all, I originally signed up when it was just the DVDs for about $9 per month. When they added the streaming, that was gravy. The one-DVD-out-at-a-time service meant, if I watched movies the day I received them and got them out the next day, I could watch about two a week, or about $1.25 per film. That's a 25¢ more than at the Redbox or Blockbuster kiosk, for those keeping score.

But at the same time, I was able to watch as many movies and television programs as I wanted on their streaming service. Lately I've been going through the entire Battlestar Galactica reimagining, as well as South Park. I have a Hulu+ membership (about $8 per month) for more recent television shows.

The problem with Netflix's streaming service is that there are a lot of missing movies. Half the things I'd like to see are available only on DVD, including all the Harry Potter movies I might want to watch before I see the final installment. The question now is whether I want to keep the DVD service at all.

At least I have until September to decide. I should see how many recent movies are at the local library.

UPDATE (September 18, 2011):
Well, it looks like Netflix went and decided for me. If the change described in their blog does go through and there is little integration between sites, I will probably quit their mailing service, possibly even returning to Blockbuster (why I left is explained here).

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Blockbuster goes bust

The Economist has a piece on the demise of Blockbuster Video, the click-and-mortar store (as opposed to brick-and-mortar shoppes) that found itself sandwiched between online upstart Netflix and even upstartier in-store kiosk rental system Redbox:

IN THE early days of the commercial internet, it was often predicted that pure e-commerce sites would begin to struggle as bricks-and-mortar stores moved online. “Clicks-and-mortar” stores, which could reach consumers both on the internet and on the high street, were thought to be inherently superior. Surely Blockbuster would be able to crush Netflix, an online service that rents DVDs through the post? Surely Barnes & Noble, a bookseller, would easily see off Amazon?

As it turned out, they could not. Shares in Barnes & Noble have slumped over the past few years as those of Amazon have soared. The British arm of Borders, another media retailer, went into administration last year. And on September 23rd Blockbuster filed for Chapter 11 bankruptcy protection in New York. The firm, once owned by Viacom, a giant media conglomerate, aims to reduce its debts by about $900m. It is likely to close some of its 3,000 American stores. (The company’s non-American operations and franchised outlets are not affected by the bankruptcy filing.)

The growth of Netflix, a technologically savvy company with a vastly superior website and an attractive subscription model, was hard on Blockbuster. But the firm was caught in a pincer movement. On one side was Netflix. On the other was the decidedly low-tech Redbox, owned by Coinstar. Redbox rents films for one dollar a night through kiosks in drug and grocery stores—a 1950s technology applied successfully to a new medium.

I'd written occasionally about my Blockbuster membership (here, here, and here), and briefly mentioned the Netflix membership I currently have, but never went into detail about why I switched. As briefly as I can explain, Blockbuster ended their unlimited in-store exchange policy, making their $12/month membership far less worth my while (I would take my by-mail DVDs and exchange them at the store for another title, which I'd watch while I waited the couple days for the next by-mail DVD).

I even wrote to them asking that I be grandfathered in with the old policy, but it was clear that no thinking human being had actually read my letter: the response was a form letter saying sorry that you won't be with us anymore. I still get form-letter emails asking me to return and telling me what I'm missing.

Meanwhile, I got myself a Netflix membership. For $9/month, I get unlimited DVDs by mail (only one at a time), but I can also watch their entire online library for free. Granted, the online library is only about one-fourth of their entire library (something that poses a serious problem for Netflix), but I still have close to five hundred titles I've yet to watch. I have given the by-mail DVD subscription to my mother as a perpetual birthday present, while I use the same membership to watch movies online.

I'm not so sure if Blockbuster couldn't compete, or they just gave up trying. I could tell from the employees at the Kapiolani Boulevard Blockbuster that there was an atmosphere of defeat. And that's too bad; I enjoyed chatting with the staff (some of whom I developed a good rapport with) and asking them about this movie or that, a service that Netflix doesn't really offer.

Back in Seoul, I hadn't had a video membership since I moved out of my old neighborhood, when I would by VHS tapes and later DVDs (the latter of which usually had English-language subtitles, which helped with the ten percent or so of the movie I didn't understand). There was no real demand for video store chains, and with cable TV and online sources (which would preclude the need for a Netflix-like service), those mom-and-pop brick-and-mortar video shops are an endangered species as well. The one in my old neighborhood has morphed into a convenience store with the DVDs on the side. Progress?