Monday, September 19, 2011

Netflix Split: A Cautionary Tale








Netflix announced a new model for the company on Sunday, sending the Internets abuzz regarding the new direction. I have been asked several times now for my thoughts on this, so, using my knowledge as a customer of Netflix for sometime and putting on my marketing guru cap, here they are.

Netflix is making, on the surface, a smart move in focusing on the future of their business - streaming content. Undoubtedly, and Blockbuster will agree, this is the direction of the market and the future for the Netflix consumer.

So, having a clear-cut future path set out before them, it's time for this once-promising company to take action and execute a solid business plan for their future development. Except that it appears they aren't going to do that.

Here's why this model won't work:

1. Integration. There appears to be none. The two separate divisions don't work together, and this makes no sense from the perspective of their digital customers. Separate websites, separate billing, separate login. Customers are already dropping like flies. Good luck with that.

2. Product. According to the Netflix blog, "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) because they are afraid to hurt their initial business." Fair enough, but to move forward, you should have a firm grasp on where you are going.

Before you throw the core of your business (DVD's) under the bus, you should probably try to make the new direction (streaming) at least mildly attractive. The streaming services of Netflix do not offer a prolific selection for their customers. Consider the following crowd-pleasing examples: Want to watch Avatar? Too bad. Not your cup of tea? Try Anchorman. You are welcome to watch Batman Forever but forget about The Dark Knight.

3. Competition. Anyone ever heard of YouTube? How about Hulu? Even Amazon has jumped in. Streaming content is competitive business. And a major competitive advantage, their licensing agreement with Starz, will dissolve when Starz said earlier this month it won't renew a contract ending in February that gave Netflix rights to newer movies from Sony Corp. and Walt Disney Co.

4. Brand. If you are attempting a rebrand of your business, do your homework. Did someone think up Qwikster yesterday and then slap it up there for the announcement? I hope so, because it's not that clever or descriptive. And it's apparently already been taken by a pot-smoking Elmo.

5. Approach. For some time, a problem for Netflix has been that they are not a consumer-centric operation. This latest change fails to address the issue, and the proof is in the pudding – early signs show that investors seem to agree that this is not a move in the right direction.

By their own admission, the initial step of this division, the price change, was mishandled. A humble blog post seeks to open and improve communication with the consumer regarding the direction of the service, but this latest move confuses nonetheless.

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