According the email, all Netflix users were upset at the announced price increases earlier this year and that’s what prompted this splitting of services. I don’t doubt this is true since most Americans are attempting to tighten their purse strings, but I believe that this is only part of the issues behind the decision.
A few months to a year back, Netflix had to announce their income, making this once small Internet start-up, prove just how profitable video streaming could be. Since then, Studios and TV networks have been trying to bully Netflix into paying more for their content or putting delays on the time frames in which content can be released. For us the consumers, we might have to wait an extra month before that new movie come to us by mail. Personally I can wait the extra month and I think Studios are fooling themselves if they think I will buy the movie instead of waiting on Netflix. If I felt that strongly about a movie, I would have seen it in theaters. But I digress from my point. Netflix has made some serious bank last year, and everyone who made less is shoving their weight around for a piece of their pie. Movie studios have a tendency to feel entitled if you make a lot of money on their “content”. For a comparison to this situation just look at movie theater prices in the last few years and tell me that its theaters being greedy, I highly doubt it.
As you can now see, Netflix is in a predicament with us the customers mad at price increases and Studios demanding more money. To top all that off, a decrease in profit for next year with drive their investors away too. This situation does not bed well for anyone but especially us the consumer.
Pundits and News organizations have made lots of comments this week about how silly this decision is and how this could be the end of Netflix. I think most of them are way off target on what’s really going on here. I have heard people speculating that Netflix will try to sell their new Qwikster service because they are going to cut out the shipping of physical media. This is way off, because broadband issues are still huge in this country and with current legislation they won’t be getting better anytime soon. Plus they are talking about adding games to the new service. That does not sound like a company looking to rid it’s self of physical media to me. Also people have commented on how the name sounds weird or rushed, but I think it was meant as dig at Gamefly. They can’t use the term “Flix” if they provide games as well but they can demonstrate how much faster they can be. Gamefly has had a reputation of being slower than Netflix over the years. I think the new name is a smear at who will soon be their new competition. Personally I think it is great because competition is always good for us.
This too is also another small part of what is really going on. I think the real story goes back to the Studios bullying Netflix for more money. Right now the cost of the streaming service and mail service are part of the same pool of money. When Netflix announced their profits this year, I am willing to surmise streaming only makes about 25% of them. The fact that a recent study on internet usage showed that 30% of traffic is Netflix streaming has freaked everyone out. People now believe that it is the source of all Netflix’s income. I personally pay more for the discs I get than the streaming half of the service, so I call bull on those ideas. By splitting the services Netflix is giving itself the ability to push back on Studios by showing just how little profit comes from streaming. It may not look like it right now, but in a year’s time I bet their will much more content on streaming and we will owe most of that to Qwikster.
While only time will tell us the real story, I think Netflix is intelligent company, who is here for the long haul. Even though it might not look like it now, I think that our streaming future is here to stay and Studios will need to adjust to our demands as a changing populace. It does not look like it now but I think the real winner in the end will be consumers.
Source- USAToday - http://www.usatoday.com/tech/news/2011-05-17-netflix-internet-traffic_n.htm
Source- Netflix Blog- http://blog.netflix.com/2011/09/explanation-and-some-reflections.html
Source- Wired- http://www.wired.com/epicenter/2011/04/netflix-profit-up/
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