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Netflix’s Tough Transition to Online Movie Streaming

Written by in Strategy
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Before Netflix there was Blockbuster, and we all know what happened to Blockbuster. They were beaten down to the point of bankruptcy by the red envelope (edit: Ironically enough, Blockbuster now has the potentially successful online streaming service under Dish). It became a matter of convenience for customers, and with DVDs being mailed right to their doorstep, why would they need to go out to rent from Blockbuster?

  Back then Netflix CEO, Reed Hastings, may have looked like a genius, but now he could be on the losing side of the business battle. On Sept. 18, Hastings made an announcement that Netflix will be splitting its services in half to form two different companies. The DVD mail service will be called Qwikster, and the online streaming portion of the company will remain as Netflix. This is a major transition for Netflix but this sudden change could prove to be the nail in their coffin.

  This decision likely stemmed from two sources; the outrage from customers about the 60 percent increase in monthly fees, and the dying DVD industry. Hastings understands how important convenience is to the customer and we believe that he could be trying to save Netflix by dumping the dead weight.

  If Hastings is really trying to make the jump from DVDs to streaming movies on the web, then he sure didn’t get off on the right foot. After Hastings announced the Netflix split on Sunday night, the social media world wasted no time in attacking his decision. This is the second time since July that Hastings has been the recipient of verbal assaults. When the new pricing structure called for an increase in monthly fees of 60 percent, customers wasted little time jumping ship.

Losing More than Their Customers

  It appears it’s not just the customers who are getting fed up with Netflix. The premium movie channel, Starz, has ended their relationship with the newer, struggling Netflix. Although Netflix just signed a new deal with the Discovery Network, and is in the process of signing with Dreamworks, losing Starz will definitely damage their movie selection. This is proving to be a very expensive transition for Netflix. On Sept. 16, Ben Fritz of the The Los Angeles Times reported that Netflix stock had fallen 19 percent and the company expects to lose about 600,000 subscribers.

More Than a Few Bumps in the Road

  These past few weeks have surely taken their toll on Hastings and his company. Netflix/Qwikster not only has a mountain to climb, but if they can get back to the top, they’ll be right back in the ring with competitors Hulu and Redbox. As if that wasn’t enough, the Qwikster screen name on Twitter has already been taken by a weed-smoking Elmo. Netflix can’t seem to catch a break right now.

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