Once upon a time-less than four months ago, in fact, Netflix stock was pushing $300.00 a share. () Today, September 22nd, it is hanging around $130.00 dollars a share. (Netflix Stock) According to the historic stock lookup avaliable on netflix own site, the shares decreased sporadically after a price hike was first announced in mid July. That might not be concerning, but now stocks have continued to decrease every day in September due to a host of other bad decisions.
The beginning of the end
On July 12th, 2011 Netflix announced that it was separating its DVD service and its streaming service. (Netflix Blog) DVD plans and streaming plans would each start at 7.99. You could still combine plans, but there was no discount for that. The cheapest combo plan simply added the cheapest DVD plan with the streaming plan: $15.98. It turns out that was foreshadowing. Customers reacted, as would be expected. Netflix appeared to be unconcerned, which was not altogether unexpected either. Netflix had already shown a disregard for responding to feedback when they refused to address customer’s inquires that Wonder Years was not avaliable on instant watch. The show had been part of an addition announced in April, and although other shows from the announcement had appeared-No Wonder Years . (Netflix blog) Subscribers announced their intention to quit on September 1st, and surprisingly, they acted. Stocks fell on September 2 nd , although the drop was blamed primarily on the fact that Netflix deal with Starz had unraveled It was bad timing. Streaming became more limited just as prices for streaming increased. (Yahoo!News) On September 15 th , Netflix announced new subscriber expectations. (venturebeat.com) Subscriptions were expected to be down by an additional 800,000. Stocks tanked. It would not be the last time.
Bad Names. Bad News. Bad Planning.
A 60% price increase is never fun, but Netflix could have recovered. $15.98 is an odd amount to pay, but it is still a good deal over all. CEO Reed Hastings issued an apology to his subscribers. (Netflix blog) It sounds like a professional thing to do, but it turns out the apology was not so much an apology as it was the next announcement that would irritate subscribers. Netflix is splitting into two companies. Netflix will now refer to streaming only. A new company, Quikster, will refer to the DVD by mail division. There are many problems with this, the least of which is that Quikster is a terrible name. The charge for a combo plan simply added two plans together because there would now be two separate charges for the services. Convenient connections between your streaming list and movie queue are gone. You won’t be able to add something to your queue from instant watch, and movie ratings will not overlap. Mr. Hastings says that companies rarely die from moving too fast, but this may be a time when a company is moving too fast. After all, their streaming catalog is extremely limited already, and set to become more limited since the contract talks have failed. In addition, it still requires a lot of band with to stream a movie. A study done just last year found that only 60% of households have high speed internet. Of those households, many may still lack the bandwidth required for streaming. Netflix recommends that you have at least a minimum of 1.5 Mb/s bandwidth available. DSL starts at 256 kbit/s. (wikipedia) To a Huffington post article about 10 businesses that have failed for being too fast “being early is the same as being wrong.” (Huffington)
To the cynic, the division of the two companies may seem like a split second decision. Don’t be fooled. Netflix has been planning this for quite some time. Searching qwikster on whois.com reveals that the domain was registered in 2010. This also explains why the twitter handle @qwikster is already taken. Twitter was not as important in 2010, and no one thought to check. (Fox News)
The Moral of the Story
Can Netflix recover? It’s hard to say. Their image is shot, and consumers tend to be unforgiving, even if a company starts doing everything right. Price increases are inevitable, but extreme price increases must be handled delicately. The two companies still offer a good deal, but there is no incentive to use both Netflix and Qwikster. Someone might decide to use Qwikster for DVDs, but turn to a new streaming site for streaming. Or, if they are looking for only new releases, patron redbox instead of looking for that red envelope. DvDs and streaming are a compatible service at this point. It still makes sense to offer them together. On the other hand, people tend to want what they’ve become accustomed too. Millions of subscribers have let Netflix into their lives. In addtion, Netflix has just announced a partnership with a company notorious for angering thier users and then making nice again–Facebook. (Netflix blog) With Facebook battling Google + and Netflix battling themselves, this could be interesting.