10 things to remember about Netflix while scratching your head about Qwikster
- Netflix DVD shipments “have likely peaked” and the company’s DVD subscriber base is declining. Already, 75% of Netflix’s new customers were signing up for streaming-only plans in the first couple of weeks after Netflix announced its price increases.
- Netflix sees its strongest competition as “an improved MVPD service offering more Internet video on-demand.” MVPD stands for “multichannel video programming distributor,” and includes cable companies like Comcast, telcos like Verizon, and satellite companies like DirecTV. Don’t forget that DISH Network recently bought Blockbuster’s assets and is bidding on Hulu.
- Netflix is expanding its streaming-only business internationally, but DVDs are only available to rent in the United States. Having a universal, worldwide definition of the Netflix brand — “streaming movies and TV shows for a monthly subscription fee” — is worth something.
- Qwikster relies heavily on the U.S. Postal Service, which is in big trouble. Would you want to have to worry about that every day?
- Netflix’s holy grail is to get each person, not each household, to have a separate streaming subscription, the way everyone also has a separate Facebook account. Separating a per-household service like DVD rentals-by-mail helps simplify that eventual transition.
- Netflix was already physically separating the DVD business, with that team to be based in San Jose, whereas Netflix corporate HQ is in Los Gatos, Calif. Netflix also says that negotiating DVD and streaming deals is already largely a separate process, involving separate groups at the studios.
- Eventually, Qwikster may decline enough or pivot into a different business to the point where Netflix may want to fully spin it off. Or sell it, or use it to buy other companies, or merge it with another company, ranging from Redbox to Best Buy to GameStop. Having a nondescript name that doesn’t suggest “mail” or “movies” is probably a good thing, given its unclear future.
- Netflix was already planning some sort of next step for this shakeup. It teased on its last earnings call: “we’ve got a dedicated group, who actually have come up with some pretty neat ideas for how to improve the DVD service … and those improvements will roll out in Q4.” [PDF]
- If Netflix finishes Q3 with 21.8 million streaming subscribers, as anticipated, it will still almost have as many video subscribers as Comcast, the largest U.S. cable company. Also: Most people who subscribe to digital TV services still aren’t Netflix subscribers, so they aren’t involved in the upheaval.
- As before, Netflix’s biggest challenge is now to get more streaming content to make the service better, while preserving its value. Part of that means it needs to convince studios to stream more of their best content through Netflix. (Some of that content is still only available on a plastic disc.) That’s why Netflix is so adamant to separate itself from the DVD business and speed up streaming adoption for studios and consumers.
Follow-up: Here’s where Netflix screwed up this whole Qwikster thing
Earlier: Netflix wants to get rid of its DVD business so badly that it’s changing the name
Check out my new site: The New Consumer, a publication about how and why people spend their time and money.