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Netflix Won’t Split in 2 – But They’re Still Doomed

There’s a really hot story today that I kept planning to get to, but I never had the time.

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

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Syn October 10, 2011 um 7:28 pm

Not for me, I’m 10 miles from the nearest RedBox, thats 20 miles around trip and about 8 dollars just for the gas, plus my time which I like to believe is worth a few bucks as well. All together it would be 40 miles round trip to go and get and return the movies, and 16 dollars in gas, and I haven’t even counted the cost just to rent a couple movies on top of that.

With all that said Netflix has made some boneheaded moves this year, I’m just not entirely sure they are at fault when you have companies charging near extortion prices for them to get content. I mean Starz turned down 300 million dollars, when their original agreement was like, what.. 25 million? Its crazy.

I think you have your cable and satellite companies making it hard for Netflix to get content. Its a shame, I know a lot of people, who because of Netflix, completely stop pirating, even if what they wanted to see wasn’t on Netflix, it was ok, there was something else on to watch.

Sherri October 10, 2011 um 8:04 pm

Given how much I pay to Netflix, and how long I tend to keep DVDs before returning them, I think I can probably just buy the DVDs from Amazon and come out ahead.

Mike Cane October 10, 2011 um 8:07 pm

I am sooooo glad I don’t give a damn about most movies and TV. All of this is just off my radar.

Peter October 10, 2011 um 8:13 pm

Splitting the companies was the right move, but they got the order wrong.

The services should have been separate from day one. This would have prevented the unsustainable tragedy of the commons situation that developed.

I was a Netflix subscriber for almost ten years, and I canceled at the split. My problem was that I never had any interest in streaming in the first place, but ended up using it just because it was tossed in for free. I’m sure that my watching the movies cost Netflix money- but it was money NOT well spent- I was never actually willing to pay for streaming.

Eventually they had to raise prices. And it was easier to cancel both accounts than just one.

So it now appears that classic, film on screen, movie theatres will end up having outlasting Betamax, VHS, DVD, blockbuster, hollywood video, AND netflix.

Just another example of the FILO nature of technology.

Nate Hoffelder October 10, 2011 um 9:05 pm

That would also have been a good alternative. A small surcharge would have cut down on traffic and kept everyone from getting used to it.

Andrys October 11, 2011 um 8:34 am

As much as I enjoy Amazon, their PRIME streaming content can’t begin to compare with what Netflix has available for subscription streeaming. The PRIME is made up of older movies and TV shows (Some BBC shows may be one advantage for Amazon Prime).

I probably have 110 documentaries sitting in my instant queue (I’m weird that way) but the bulk of the current ones in HD are not on Amazon. Also, I may be wrong here but I think Amazon streaming is not in HD while Netflix’s is. I get beautiful images on Netflix’s HD-capable streaming.

Amazon has practically doubled what they do have though, but on current videos you pay a single fee for each one. If you can do that for under $9 a month for what you want, then Amazon’s good except for HD streaming.

Nate Hoffelder October 11, 2011 um 8:50 am

I cannot get HD streaming, so that doesn’t matter to me. But good point.

Graham October 11, 2011 um 9:22 am

Want to know another place to rent DVDs of movies and TV series for free?

Your public library!

(Of course, it’s not entirely free, you pay with your tax dollars … so you paid for your library, why not use it?)

Amanda October 14, 2011 um 9:33 pm

Because at my library almost all of the DVDs are unplayable. If you are not one of the first lucky few to check one out, they are quickly scratched beyond use. I don’t recall having that problem even once from Netflix.

Lark October 11, 2011 um 11:29 am

Netflix does offer something I need that no one else offers: documentary rentals. True, I can get a few of those at my local library (and do), and maybe a few of the really popular ones at RedBox or a Blockbuster box (I haven’t checked), but for sheer selection, no one beats Netflix. Since we homeschool, that’s a dealmaker for me. I’m not borrowing whatever looks entertaining for the night, I’m renting something to relate to a specific subject, usually historic or scientific, to use educationally.

Joseph October 22, 2011 um 10:16 am

My feeling is that very soon everything will eventually switch to streaming. I think Netflix could help people that are resistant to this make the switch by offering on demand movies and providing more of the features you have available on your computer to the set up they have on the Wii and other devices.

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