«

»

Oct 10

Print this Post

Netflix cancels Qwikster in hopes that customers will stop cancelling Netflix

I first wrote here about Netflix’s decision to separate its business into two companies with two separate websites. It was a terrible move. So bad that Netflix announced today that it would not go through with it, stating by email to its customers:

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password…in other words, no Qwikster.

In brief, the plan was to create a new company with the name “Qwikster” to handle the DVD/mail service side of the business while Netflix would handle streaming services. Besides the ridiculous name, Qwikster entailed some major turnoffs for customers, especially those who wish to subscribe to both DVDs and streaming. Specifically, with Qwikster in place, these customers:

1. have to subscribe separately through two different websites,
2. see separate charges on their credit card statements for both Netflix and Qwikster.
3. must log in to each website separately to stack their DVD and streaming queues.
4. must log on to each site separately to update address and credit card information.
5. who rate or review a movie on one website, won’t have the benefit of that review on the other website.

In addition to all these problems, it made no sense as a business move for Netflix to completely remove its widely recognized and much loved (until recently) brand name from a huge portion of its business. Most companies do just the opposite. When a company has a brand that people recognize and trust, managers try to extend that brand to new lines of business, not divorce it from the very product that made it popular. Netflix never made its thinking clear on this branding move.

Despite all these downsides, Netflix’s CEO Reed Hastings had substantial difficulty identifying any upsides to his decision. He specified only that having two separate websites would create a simplified experience for customers. In place of whatever simplification that Mr. Hastings envisioned (he failed to specify), customers took simplification into their own hands by cancelling one or both of their subscription services.

Netflix’s stock price subsequently tanked, dropping to nearly $100 from a July high of nearly $300. Money talks, and so do stock prices. Netflix publicly reversed its decision Monday — this time, thankfully, via a brief notice emailed to customers rather than a lengthy, soul-bearing blog posting from Mr. Hastings.

It takes a measure of humility to reverse a highly publicized decision. But sometimes decisions are so bad that the humility required to reverse the decision is easier to swallow than the inevitable disaster that will result from the decision. I applaud management at Netflix for reversing this dreadful decision. Now Netflix should rethink and rescind its earlier decision to un-tie DVD and streaming services.  Who knows, I might even re-up my subscription.

About the author

Eric Madsen

Mr. Madsen is a Chartered Financial Analyst (CFA) charterholder and a Manager at Fulcrum Inquiry, a finance and economics consulting firm that performs economic damages analysis involving commercial litigation, financial investigations, business valuations, and forensic accounting. He also holds an MBA from the UCLA Anderson School of Management and a B.S. in Economics. He conducts expert analysis in finance and economics. Mr. Madsen may be contacted at 213.787.4122 or at emadsen@fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2011/10/netflix-cancels-qwikster-in-hopes-that-customers-will-stop-cancelling-netflix/

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

*