Netflix announced today that they weren't going to split the DVD rental and streaming video subscription services into 2 companies. They finally noticed that customers were pissed about the matter and at long last they realized that they shouldn't piss off the customer.
Unfortunately, their previous boneheaded maneuver, splitting the services and raising the price, will not be going away. And that could be their downfall.
I've been a longtime Netflix subscriber (November 2007). Over the years I had been paying for anywhere from 4, 6, and sometimes even 8 DVDs at a time. But by mid-2011 I had run movies I desperately wanted to see and I didn't have the time anymore, so I had cut mu subscription to the lowest possible $10 a month.
When Netflix split the services and raised rates, I was rather pissed, A 60% increase was beyond any measure of reasonable hike, so I thought about the matter and switched to the streaming video service. I occasionally wanted a DVD, but not enough to pay $8 a month.
I was content to pay $8 a month, but this past weekend I was watching a movie via Amazon Instant Video and I realized that I was paying Netflix for the same service that Amazon offered for free (bundled with my Amazon Prime membership).
And that is how Netflix screwed up.
When they had the combined service, Netflix offered a hybrid product that no one could compete with. If you compared the service offered by Amazon, Redbox, or BlockBuster beforeNetflix split you could see that Netflix sold something that no one else did and they offered a better value for the cost.
But now that they've split the services, each of Netflix's services will have to stand on its own. Amazon no longer have to try beat Netflix as a whole; they only have to beat the streaming video service. The same goes for Redbox and BlockBuster. They only have to offer a better value than the DVDs by mail.
In fact, I would go so far as to say that splitting the services was the blunder, not the 60% increase in the subscription fee. Splitting the services introduced the idea that customers can shop around and find a better deal.
Netflix put customers in a position to ask if the $8 a month was worth it for each of the 2 services. In my case the answer is no. I could combine my free video from Amazon with 3 or so DVDs a month from Redbox and I would get the exact service that I used to pay $10. Only now I'm paying a mere $3 a month to Redbox, and Netlfix lost a customer.
Netflix went from offering a service that no one else could match to offering 2 services that everyone could match. That was their blunder, and that could be their doom.
image By Sam Howzit