Netflux
Many of you are likely Netflix subscribers and, as such, received the mea culpa letter from Netflix CEO Reed Hastings. If not, let me orient you first. Netflix started with a DVD-by-mail business model with a distributed set of fulfillment centers around the country. This was the evolution of home movie entertainment from the Blockbuster’s and Erol’s VHS and DVD in-store rentals. The Netflix pricing model was savvy – pay a flat fee per month and you can have some number of DVDs out for as long as you like. No more racing that night or the morning after to return a movie to the store. No storefronts to maintain, etc. Consumers are savvy as well, and a fair number maximized the plans which, in effect raises the average cost for the service as more DVDs need to be handled, more mailing, etc. For a great dissection of this issue, go read one of our faves, Megan McArdle.
Lurking in the background of Mr. Hastings’ mind and other competitors was the next evolution – streaming of movies. Netflix was relatively prepared and entered that market along with various other competitors. However, this market too has a cost and Netflix was eating the cost (essentially) when people used the unlimited streaming service and the DVD service. They proposed a price increase that rattled teh intrawebs as many viewed this as a price hike by a greedy corporation. They had become acustomed to a certain level of service at a particular price point. Netflix had to change or risk going out of business from a revenue perspective. I know I’m channeling Ms. McArdle here, but it parallels the feeling many Americans have with their entitlement programs.
Do I fault Netflix for their price increase? Nope. It’s business and there’s a cost associated. It could be a factor in the future when a competitor knocks them out by a more attractive service at a better price point.
Now, Netflix is splitting the company into Qwixster (not the obscenity tossing Twitterer although bad on Netflix for not avoiding this) that will handle the DVD-by-mail business and Netflix which will handle the internet-based entertainment streaming business. There’s been a lot written about the apology letter and the proposed split. My take: it’s a good thing. It’ll be painful here in the short-term but if Netflix can survive, Qwixter is now set up to close down without (hopefully) impacting Netflix in the future. Read back – there have been evolutions of the delivery of home entertainment (a simplification: in-store rentals -> by-mail, by-mail -> streaming) and that will continue. I believe it is only a matter of time before others in the food chain of the streaming media get hungry for a bigger piece of the action. Cable/Telco internet providers are already licensing entertainment media libraries and offering them via streaming (think “On Demand”). Maybe some of the future evolutions will be pure streaming delivery of movies from the studios – some theaters already have that in place.
Netflix is just an example of why companies need to keep innovating to maintain a viable business. Go ask Blockbuster how they’re doing. After all, we all want a piece of the action.
GorT is an eight-foot-tall robot from the 51ˢᵗ Century who routinely time-travels to steal expensive technology from the future and return it to the past for retroinvention. The profits from this pay all the Gormogons’ bills, including subsidizing this website. Some of the products he has introduced from the future include oven mitts, the Guinness widget, Oxy-Clean, and Dr. Pepper. Due to his immense cybernetic brain, GorT is able to produce a post in 0.023 seconds and research it in even less time. Only ’Puter spends less time on research. GorT speaks entirely in zeros and ones, but occasionally throws in a ڭ to annoy the Volgi. He is a massive proponent of science, technology, and energy development, and enjoys nothing more than taking the Czar’s more interesting scientific theories, going into the past, publishing them as his own, and then returning to take credit for them. He is the only Gormogon who is capable of doing math. Possessed of incredible strength, he understands the awesome responsibility that follows and only uses it to hurt people.