Monday, September 19, 2011

Dear Netflix...

Photo Credit: Connected World Media
Today I received an email from Netflix CEO Reed Hastings, but I'm not sure it was for me. He apologized for not making more of an effort to explain the pricing changes announced 2 months ago. Then he went on to say that I would be receiving two separate bills in the future, one for DVDs and the other for streaming media. Sounds complicated. At this point, it doesn't even feel like it came from Netflix, at least not the Netflix I've come to know and trust over the past 10 years. You can read the entire message here.

With all due respect Mr. Hastings, I have to wonder who is the intended audience. Is this message addressed to customers or an engineered PR initiative to placate shareholders? I've received emails from Netflix before with an apology for service hiccups and an immediate remedy in the form of a service credit. But there was no remedy here, only an explanation and the announcement of further separation of the DVD and streaming business units. The timing is curious since this follows an announcement 2 months ago that kicked off one of the worst quarters in Netflix history.

Source: Google Finance
There was a fatal flaw in the Netflix streaming model from the beginning. They must have known streaming video would be their next flagship service and they offered it for free. Never offer your service for free. Trial period? Sure. Limited free account with an upgrade option can also work. Invitation only beta testing is another option that has been successful. However, when Netflix offered free unlimited streaming, they immediately devalued the service. They knew then that someday they would need to charge a fee for their streaming content, that eventually it would be the model that replaces the DVD by mail service. Had they offered the service as a reasonably priced upgrade, considering the quality of picture and volume of content at the time, many customers would have signed on. Incremental price adjustments over time would have been tolerated as quality and selection improved. That would be a transparent process with perceived value at each stage that is in accordance with evolution of the service.

The pricing model is just the surface, however, the deeper problem here is the loss of identity. Netflix forgot why they exist. In the beginning it was Netflix vs. Blockbuster. One was the establishment that had gradually killed off the mom and pop corner video stores and now dominated the market with a ruthless model of individual rental prices and exorbitant late fees. Then there was Netflix, the underdog, the David to Blockbuster's Goliath, that offered movies delivered to your door for a simple flat subscription rate. It was simplicity and convenience that killed Blockbuster. But what is Netflix without Blockbuster? They need an identity without being dependent on comparison. Better than Blockbuster only works when Blockbuster exists and, for all practical purposes, that is no longer the case. So how do they compare to their new competition in the streaming space? Who are they when compared to Google, Amazon, Apple and Hulu? I think if Netflix were managing their brand properly this wouldn't even be a legitimate question.

Netflix challenges the establishment, the very idea that you should pay for each rental and then be subjected to a deadline with late fees. They offered a simple honest alternative. Why not take on streaming the same way? Challenge the establishment of broadcast media. The model that dictates a schedule of programming with a subscription plan on top of an advertising platform. When I compare them to other companies that offer streaming movies over the internet it just comes down to price and quality, they are never going to beat large companies with diversified revenue streams on that front. However, comparing an honest little company with a simple business model to the establishment of the cable tv industry? Now that is something to rally a loyal following. Why not ask customers to question paying over $100 per month to watch 200 channels full of commercials? Why not empower cable customers to unchain themselves from their couches? The Netflix brand already has clout challenging and defeating a monopolistic empire. That doesn't transfer to building a shiny new technology platform, but it does transfer when you aim to take down a different empire.

I sincerely hope Netflix regains its footing and direction to achieve continued success in their new ventures.

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