Netflix: Too far, too soon? ~ Brand Mix

Monday, September 19, 2011

Netflix: Too far, too soon?

Sooner or later, DVDs will be outdated as cassette tapes, typewriters and buggy whips. The mistake that most companies make when faced with the decline of their core business is to be in denial and to try and hang on too long. They focus all their energies trying to maintain revenues in their dying business and little time or no time trying to reinvent themselves. 

That's what obviously been gnawing away in the mind of Reed Hastings, CEO of Netflix and he's been determined that he won't make this same mistake. In his already famous memo to subscribers, he says: "For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us)."

But has his determination to avoid this fate pushed him too far, too soon in other direction? In the memo, Hastings announced that the DVD service will now be split off as a separate (non-integrated) service and given a new name (Qwikster). In doing this, he's forcing fence-sitters like me (who subscribe to both services) to make a decision one way or the other, he's reducing the company's ability to get more than its fair share of DVD users as they slowly transition to streaming and he's separating the businesses by business model, not by customers mental model. He's also doing this when DVD sales are still strong and when the Netflix streaming service is still weak (limited content).

It's a bit like getting a medical diagnosis of a terminal illness where you'd still have years of active life and deciding to go for radical surgery that's quite likely to kill you. I think it's pretty much certain that this action will hurt the company in the short run, perhaps fatally. But it also increases the chance that it may be around in 10 years time. What do you think?

(I'll leave it to others to opine on the new name.)


Martin Bishop said...

Plus, in response to my own post, Netflix has given up a big advantage on its streaming business by disconnecting it from its DVD business.

Now Netflix streaming has to win side-by-side vs. Amazon and everyone else. Will be a simple price vs. content decision vs. access for customers.

Natasha McEachron said...

Given that the book and CD sales have already started shifting to primarily being electronic transactions instead of physical goods, I think that it is highly likely that this will also be the future for DVDs. If that's the case, why create this new company? It would seem to make more sense to keep the company whole, build the streaming library, and slowly phase out the DVD service.

It seems like they might be moving a bit too quickly and possibly in too many directions. It will be interesting to see how this all plays out.

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