It is an interesting process that companies go through as they evaluate their existing businesses and what ones to shed and what ones to bet the future on. They try to keep the ones that offer future growth opportunities and divest themselves of the ones that are growing at a slower rate or are reaching maturity. Netflix believes that the traditional business of mailing DVD’s has in fact reached its maturity and appears to be banking its future on the delivery of content over high speed internet connections across multiple devices. The first step they took was to raise pricing for their services as well as segregating the fees between the streaming side and the DVD Mailing side. Subsequently they announced they would be “physically” separating the company into the DVD Mailing side (Qwickster) and the streaming side would retain the name Netflix. This, in Netflix’s management’s opinion, would allow them to focus on growth areas and not be tied down by the “old media” business.. Is this the right move or Netflix itself seen its better days and facing challenges it may not be able to overcome?
A PR Nightmare
Announcing a price increase created a negative wave of publicity and subsequently a loss of subscribers. They should have split the business in two first and then let each business set the pricing its needs to compete or were there extraneous factors that forced a more immediate price increase? They clearly underestimated the public reaction.
Are they better as separate businesses?
Not really sure they are… In terms of distribution channels Netflix had a commanding position in the home delivery of DVDs which enabled them to have leverage in negotiations with major studios. Even with that leverage they were reduced to getting new release titles later than pay for view services and retail stores. I suspect it won’t get better as two independent companies. As an independent company Qwickster should be able to secure competitive long term agreements given their position in the supply channel. This may in fact allow the Movie Studios to seize an opportunity to continue to supply Qwickster on a competitive basis while reigning in Netflix.
Netflix on the other hand I suspect is facing jealous movie studios that don’t appreciate the high valuations Netflix receives compared to theirs, given their view that they put up all of the money and risk. They also do not want to see Netflix do to the Movie business as Apple has done to the Music business in terms of market domination and control. Watch for their pricing to go up and their selection to decrease as contracts with studios are renegotiated at higher fees or subsequently terminated. Was it just me or was the James Bond library available on demand for a week or two then disappeared? It may not get any better folks. The quality of their titles may go down in the near term. Time will tell. Keep an eye on DISH and their BLOCKBUSTER brand, they might seize an opening.
I am cancelling my streaming subscription and keeping my one disk out at a time plan…probably not want they want to hear but as consumers we will decide the ultimate winner of the race.
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