Netflix, You Confuse Me

Last week, the Netflix CEO introduced Qwikster in an apology that confused people more than anything. I’m one of those confused people. There’s nothing about this change that makes sense, because it contradicts everything that Netflix has preached over the last year. Let’s wander over some history to spell it all out.

Netflix brought a large selection and a great recommendation engine that helped people find new DVDs that they liked. When Netflix added streaming video, it was side-business to the DVD shipping business. Soon, the streaming video catalog expanded and the internet economics began to make sense. It costs about a dollar to ship a DVD, but five cents to stream a video, but this was traded off against the still limited streaming selection. Streaming succeeded by using the recommendation engine to steer people toward streaming videos that they might be interested in even if it’s not the most recent material.

Netflix has been successful with this strategy. During the Starz contract negotiation, Netflix revealed that the Starz videos represent less than 8% of their total viewing hours, and that Netflix expects the Starz material to drop to less than 6% of the viewing hours. A Netflix exec also revealed that folks rate Netflix recommended movies and TV shows higher than the latest releases. This shows that their recommendation engine is helping drive viewers toward content that the viewers are enjoying, and this let’s Netflix tune their streaming video content acquisition strategy.

So, what has Netflix done with this Qwikster split strategy? They’ve broken the funnel that brings information into their recommendation engine. Netflix won’t be able to tie DVD rentals to streaming users, something that should be helpful for identifying new content to license.

Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the renaming and separation is that the and websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.

I also am confused by Netflix kicking their customers while they’re down. The price increase angered people, though I can imagine it being necessary. Now, the customers that they didn’t anger enough with the price increase will have to work harder to stream and rent DVDs. Two bills to pay, two websites to sign into, and two separate recommendation engines.

Netflix’s Qwikster split weakens their recommendation engine, angers their customer base.  I can’t imagine what they’re getting for it. While it’s always possible they’re playing ten moves deep in some three dimensional chess game, it seems more likely that Netflix just plain screwed up.

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