Netflix Splits Services, Loses Fans
Don’t you just hate it when you stumble upon something great, only to be let down later when finding out that it’s too good to be true? Well, you’re not the only one because that just happened to millions of Netflix subscribers. But if you somehow haven’t heard of Netflix yet, then you’ll probably never hear about it because the former online DVD rental and streaming company is now only a streaming service while its DVD-by-mail service is now deemed “Quikster.” The company that single-handedly revolutionized the movie rental industry has a particularly bleak-looking future. After splitting its roughly $10 monthly combined DVD rental and streaming services into separate services that will each set consumers back by about $8, Netflix is projected to lose millions of unsatisfied customers.
But is it really Netflix’s fault for upping prices by 60 percent? From a holistic standpoint, it seems like both Netflix and its customers got the short straw. Netflix lost its loyal customer base and customers lost an invaluable golden gateway to partaking in the American pastime of movie-going from the comfort of their homes. So, I’m not too sure I can make out Netflix to be the bad guy in this one.
Netflix gained prominence in the mid-2000s as the only service of its kind to provide unlimited DVD rentals by mail without late fees and the added bonus of an organized queue with which customers can choose what movies will be delivered in what order. The idea was flawless. So flawless in fact that because Netflix had a monopoly on its one-of-a-kind service, it could undercut all other forms of DVD rentals and still make prodigious profits. The company’s success was founded upon a cascade: the more Netflix’s subscriber-base grew, the more Netflix could invest in capital. Thus, the more new customers,, the longer the list of titles available for viewing.
So what went wrong? If everyone was so content, why did Netflix have to split apart and spike its rates? While Netflix was growing at an unparalleled rate, it shoved other movie rental services, like Blockbuster, out of the way because of Netflix’s low overheads. In doing so, Netflix created a low price standard for the movie rental industry that consumers became accustomed to. It also added to its already-huge customer following by allowing subscribers to instantly stream select movies and TV shows from their computer or game console at no extra charge. In essence, the circumstances at the time permitted Netflix to spoil its customers with two great services for one low rate while still remaining immensely profitable.
However, while still ascending to a seemingly unattainable pinnacle of success, Netflix was struck down by unforeseen competition. Perhaps blindsided by the glory of its profitability, Netflix failed to foresee that eventually other businesses would want a stake in the movie rental industry and would conceive ingenious way to win some of Netflix’s subscribers. For example, Red Box movie rental machines, springing up in grocery stores around the nation, offered customers with on the spot movie rentals for the low price of $1 per night. In order to compete with Red Box, Amazon, Apple, and a host of others, Netflix had no choice but to raise its prices in the form of splitting its services into two. Netflix didn’t make this move as a sly strategy to drive its profits even higher. It actually did so to stay alive in these raucous economic times. We have to recognize that as times change we can’t expect companies to charge the same low price that they did in the past. It’s not that businesses don’t value us as loyal customers; it’s just that they need to meet profit quotas to continue to give us the products we want. Even the postal service adjusts for inflation by adding that few cents here and there to the cost of stamps every few years. And I would hardly call my local post office a business in the market for profits.
In my eyes, Netflix did us a favor by offering such low prices for so many years, and I think as customers we grew a little too accustomed to those prices that we took them for granted. But in the future, can Netflix (or Quikster) win back any of its constituents that have jumped ship after the recent price hike? Unfortunately, I doubt it. DVDs in general are slowly but surely becoming a relic of the past as they’re replaced by online streaming, so there’s little potential future growth for Quikster. You would think then that Netflix as an online streaming business would be the next big thing.
However, Netflix doesn’t own the streaming rights to the movies or shows it has in its list of titles. Rather, it makes contracts with the movie studios and broadcasting channels that produce these movies and shows to gain permission. I suspect that as renting makes its transition to online streaming, the competition will be stepped up and not so many of these studios and channels will be willing to lease those rights away and thus take a hurting to their own viewership on cable or satellite.
Whatever may become of Netflix, we should appreciate it for its contribution of bringing forth a new means of enjoying our favorite movies and shows.
Faisal Chaabani is a third-year biological sciences major. He can be reached at email@example.com.