A Step in the Wrong Direction: How the Netflix Model is Falling Apart

We are a generation in need of entertainment at all times.  Our demands are no longer just robust collections of content; we want it whenever and wherever we are.  We demand a constant digital presence whether through social networks, gaming platforms, or through our favorite programs and movies.  Netflix has helped countless members of a technologically savvy generation attain their needs.  The company rose from modest beginnings, as most successful firms do, and ascended to prominence in a nearly unheard of industry for providing digital content on demand. 

The business model was simple: give people access to hundreds of thousands of movies and shows for rental by mail and provide a large -though smaller- library for people to stream over the internet wherever they are.  Netflix expanded rapidly, gaining millions of subscribers and reaching their billionth DVD delivery in 2007, just ten years after inception.  Up until recently, everything was going well for the company. 

Competitors like Redbox and Hulu Plus began to emerge, and studios became somewhat more reluctant to sign on with Netflix.  As a result of rising costs, competition, and changing studio relationships, Netflix raised their prices by eliminating its combined $9.99 DVD and streaming package for two separate $7.99 packages.  In order to get the same benefits, customers would have to pay a 60% increase in price.  An absolute storm of protest arose from customers, and subscribers began to flee the service provider en masse.  Starz, a studio responsible for bringing the company films from Disney and Sony among others said that it would not renew its contract with Netflix after it expires early next year.

In response to the uproar, CEO Reed Hastings offered a simple apology for not being as forward as he felt he should have been when approaching the fee increase.  Instead of reacting to what was a clear objection to his business decision, he only apologized for not clarifying his reasons.  That’s right, the fee increase stands.  That is not where this debacle ends though.

Netflix management has decided to further alienate subscribers by splitting off the two respective segments of the company’s operations.  Netflix will remain as the branch in charge of streaming media, but now a new company called Qwikster will take over disc-based operations (to include video game rentals in the future as well).

Customers were already furious, as many of you probably are, about the price hike.  Now instead of one website, one bill, and one unified queue for the content that you want, you will have to navigate and coordinate two.  In a time when we want to minimize the time spent on tasks like organizing digital content, this is a double blow. 

These decisions are clear reminders that businesses do not exist for the executives, but for the customers.  The voice of the Netflix customer base was hoping for a change back to the way things were before the prices were increased, but instead management proceeded with a plan to further disillusion them.  I may not be able to speak for the masses, but I don’t think that I want to support a company that has clearly lost touch with its customers.             

How can generating resentment and inconvenience be a good business strategy?  If Netflix does not take these recent actions and their affect of customers seriously, the company may soon lose the game that it helped invent.  Could this be the event that ushers back the era of personal service from the local video store glory days?  Only time will tell, but our generation will still require the flexibility we have been afforded by modern innovation.  If need be, those that demand digital content will find new ways of procuring it whenever and wherever they want it.