The Netflix/Qwikster disaster

As usual, this post is merely an edition of comments I’ve made on HN.

The Lowdown

Netflix has announced its intention to spin out its DVD-by-mail service into a separate entity called “Qwikster”. Netflix will henceforth offer streaming video exclusively. The two sites are completely discrete and will no longer share data or even a billing mechanism.

This is a terrific disaster for Netflix devotees and Netflix itself.

The Customers’ Disaster

The primary issue is that Netflix has made a major consumer-facing split on what is really an implementation detail. Netflix users want to watch movies. That is the reason you get a Netflix account, that is the goal of the Netflix customer. Whether that movie is available on DVD or via the intertubes’ streaming fairies is not really exceptionally relevant to the customers’ ultimate goal of watching that movie. Netflix is a company for intrepid movie-watchers, and artificially restricting this to intrepid streamers is just leaving money on the table.

Netflix’s success heretofore has been based upon a vast simplification in watching movies. In splitting the service and creating an artificial rift in their offerings, they’ve backpedaled tremendously; with the hard division of DVD and streaming, Netflix has gone to lengths to de-simplify your movie watching in order to remedy what really was a problem with management structure.

Netflix emphasizes, as they have for years, that DVD-by-mail will eventually go away. They do this in the same breath as they attempt to encourage users to register for Qwikster, essentially promising that those who are still interested in receiving physical DVDs will, in the relatively near-term future, have even greater hassle to their ultimate goal of watching movies, because Qwikster will shut down and take its users’ ratings, recommendations, and rental history with it.

What Should Have Happened: Redbox + Netflix

Instead of dividing the company in a way that made movie-watching less convenient, Netflix should have turned its attention to Redbox. Netflix and Redbox (which is now owned by Coinstar, a much less compatible couple) are a match made in heaven; Redbox is ubiquitous in most areas of the US these days and could function well as Netflix’s physical distribution arm, cutting Netflix’s dependence on the dwindling US Postal Service and saving postal costs.

I am personally acquainted with several individuals whose Redbox usage has replaced Netflix. These people are primarily interested in recent-ish releases and might have streamed if the content were available for streaming, but since desired content is rarely streamable, found it simpler just to go to Redbox and pick up the physical DVD. This is much faster than waiting for the mail, which in most cases has a 2-4 day turnaround.

Redbox would be an investment worth quite a significant chunk of money and integrating a user’s Redbox experience with the Netflix website would have been a great win. My speculation is that Coinstar doesn’t really know what to do with Redbox and they may have acquired the kiosks in anticipation of reselling in the first place, since it really doesn’t fit in with their standard business practice.

I recognize that Reed Hastings would probably balk at this suggestion; Netflix doesn’t want any of the hassles of pesky physical media anymore, and if nothing else they’ve made that quite obvious today. But I think it’s misguided — as exciting as streaming is, I don’t think discs are going to make a permanent exit any time soon. There are still issues with streaming delivery, like conflicted, guarded ISPs (Comcast, whose cable subscription tallies are constantly diminished by Netflix) and the non-tech-savvy who insist on using ancient computers riddled with spyware and can barely get Gmail to load in less than 10 minutes, let alone stream a HD movie. It’s much easier to go pick up a disc and place it in a tray than it is to start a Netflix Instant movie, especially since one must usually install Silverlight before watching.

The staying power of physical DVDs is really its own post, so I’ll just stop there.

And on top of all that, the prevalent red color schemes of the Netflix website and the Redbox kiosk already match. How is this not obvious?

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