Netflix split angers loyal customers, stockholders

What company do you know can successfully take down a leading competitor, split their own business, and raise their fees 60 percent? Reed Hastings, CEO of Netflix, Inc., did just that.

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By Bliss Waithe / Asst. Opinions Editor

(Netflix.com)

By Bliss Waithe / Asst. Opinions Editor

What company do you know can successfully take down a leading competitor, split their own business, and raise their fees 60 percent? Reed Hastings, CEO of Netflix, Inc., did just that.

Within these past few months, Netflix has been making quite a few appearances in the news, more often for overwhelmingly negative reasons than positive ones.

In July, Netflix announced on their website that they were increasing their prices by 60 percent. A few weeks later, they revealed the split between its services, therefore resulting in the separation of their DVD-by-mail and Instant Watch bundle.

Netflix began to feel the wrath of its price hike. The number of subscribers they lost as a result of this decision was apparently a lot less than they originally anticipated. The company now expects to have 24 million domestic subscribers at the end of the third quarter, below its earlier expectation of 25 million and the 24.6 million customers it had at the end of its second quarter.

Several companies, including Amazon and Blockbuster, pose a potential threat to Netflix with the recent announcement of their own instant streaming offers. Combined with the negativity surrounding their decision to increase their prices seemingly overnight and the failure to negotiate with Starz on the renewal of the contract to stream their film, Netflix stock shares reflect these letdowns by dropping accordingly from nearly $300 a share to just over $115.

Starz controls the rights to movies from Sony Pictures and Walt Disney Pictures and won’t allow Netflix to stream their film and television programs unless Netflix agrees to pay their licensing fee.

The most infamous event in Netflix’s lineup of mishaps, however, would be the decision they made on Sept. 18 to introduce Qwikster.

Hastings posted a blog on his company’s website entitled, “An Explanation and Some Reflections,” in which he expresses concern for unsatisfied customers, as well as addressing his desire to keep his company running successfully while constantly improving its services. He also reiterated the justification for his fee increase and announced his decision to partner with Qwikster by giving it the operation of Netflix’s DVD-by-mail service.

The streaming service, however, will maintain the existing brand name, Netflix.

Is Hastings taking a bold step by deciding to separate the DVD and video streaming services of Netflix or is he making a wise business decision that will help to increase revenue and further improve the qualities of his company?

“You’ve got to give him credit for moving fast in the direction where he thinks the greatest opportunity lies. Who knows how investors will react in the morning?” Eric Schonfeld, an editor for TechCrunch, said in response to the event. “But it is the right move.”

Now, if you are a paying customer, then you are probably displeased with these service changes. That is, of course, unless you are part of a small group of subscribers that uses only one form of the services they offer, like Instant Watch.

Take a look at this situation from the company’s standpoint.

Although the initial purpose of Netflix was to allow people the opportunity to rent movies without late fees, its goal is to make money, just like every other business. This is especially true for businesses that face extermination from the increasingly competitive feedback they receive from bigger corporations.

Most companies that are great at something, like AOL dial-up or Borders bookstores, do not become great at new things people want . . . because they are afraid to hurt their initial business.

“Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover,” Hastings said on his website in response to the negativity surrounding his decision. “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

Can you really blame him for wanting to be a successful business owner?

Hastings has let people know from the very beginning what he wanted from his business. Back in 2005, Hastings said on his website, “We constantly invest in and improve our technology . . . our focus is getting to five million, 10 million, 20 million subscribers and becoming a company like HBO that transforms the entertainment industry.”

With that being said, as much as one can hate Netflix for wanting to succeed and rise above their competitors by changing their game, it seems as if it’s all for the best.

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