So Maybe Netflix Isn't Crazy


Netflix streamingNetflix finally lost my undying support this week when it announced its plans to split its streaming and DVD-by-mail services into separate companies, and apparently I'm not the only one who felt the same way. The company's stock dipped 7 percent following its announcement that the by-mail plan would now be called Qwikster, extending a freefall that began when it announced across-the-board rate hikes earlier this summer.

Naturally, there are some folks still defending Netflix's decision to split into two, and I think Evolver.FM (via Wired) has the best rationalization of the company's moves (bold is my emphasis):

Anyone who uses Netflix should understand the fundamental difference between Netflix the DVD service and Netflix the streaming service: The DVD section has a better selection, with newer releases. The reason for this: Movie studios have a striated approach to licensing. They sell the same movies over and over in different ways, at different prices, to theaters, DVD rental companies, on-demand cable, pay TV, basic cable, online streaming services, airlines, basic cable, and free TV.

The people who own movie copyrights already treat Netflix’s DVD and streaming businesses separately, and have done so for years. We weren’t in the room when these deals were struck, but given Netflix’s surprising decision, it seems clear that the movie studios were using one as a bargaining chip against the other. Basically: “We’ll give you X on DVD if you accept not having Y on a stream until Z date.”

From Netflix’s point of view, the decision to split its streaming and DVD-shipping businesses into separate companies, with no ties to each other appears to be about allowing them to negotiate rights and release windows independently. No longer will the movie studios be able to use leverage in one area against the other, and this is especially important in light of current and future competition against Netflix’s streaming business from the likes of Apple, Google, Amazon, Microsoft and others.

Reed HastingsAnd just like that I have a lot more sympathy and understanding for Netflix CEO's Reed Hastings surprising announcement on Monday morning. In short, this might be all about the company's ability to negotiate rights for the streaming side of the business.

There's no doubt that that is where the future lies, and there's also no doubt that that has been a significant struggle for Netflix. Getting the most desirable content to the streaming side of things has proved a mighty challenge -- so much so that it seemed like a huge coup just to get The Fighter and Mad Men onto the streaming service earlier this summer. Getting movies and television shows like those onto the streaming service has to become the norm if Netflix is going to maintain its hegemony in a market that could/will wind up being very competitive, and I'm all for it trying to do just that.

I still think this whole thing has been rushed and/or bungled badly. If you have any doubt that that's the case, just stroll on over to the @Qwikster Twitter account -- the availability of which Netflix apparently didn't bother to check before its big announcement, leaving considerable amounts of egg on its proverbial face.

But just because Netflix's plans were rushed doesn't mean it isn't doing the right thing in the long run. The question now is if those sound long-term plans laid by the company can survive the negative public relations hit its taking because of the way in which they were laid.