How robust will Netflix’ business model turn out to be? – Part 3

Just as I thought that the Netflix saga had come to an end with my blog post a few weeks ago (in which I wrote about Nextflix’ CEO Reed Hastings’ announcement to split the business into two separate units), the story has taken another twist. Last week, Netflix reversed its decision to split its business into two parts, streaming (Netflix) and DVD rental (Qwikster) and became a single unit again.

In a very succinct blog post, CEO Reed Hastings wrote: “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs” but he did not offer any further explanations as to his reasons why.

What could those reasons be? Let me just speculate for a minute:

  1. Reed Hastings is speaking the truth – Netflix users genuinely struggled to have to use two different sites. Call me cynical, but surely a problem of this nature would have come to light in early stage user testing or forum groups?
  2. Too much change in one go – Perhaps the pace with which Hastings wanted to introduce business change was simply too high for most Netflix users. An official Netflix statement read: “We underestimated the appeal of the single Web site and a single service.” Nevertheless, make no mistake, online streaming does remain Netflix’ core focus going forward, despite this retracted spin-off.
  3. Unexpected amount of “churn” – The number of people who terminated their Netflix subscription as a direct result of the announced split was simply too high and was putting the overall business revenue at risk. I’m not sure if this was the case, but Netflix users still got a shock when Netflix was unified again, whilst keeping two separate price schemes for DVD rental and streaming respectively.

Main learning point: even though Netflix and its CEO were halted in their tracks to split up the business, there’s no doubt that Netflix strategic focus will be on streaming in the years to come. I’m sure that when the time is right (and Netlix’ users are ready) Netflix will spin off its DVD rental business and concentrate solely on online content streaming.

Related links for further learning:

http://mediadecoder.blogs.nytimes.com/2011/10/10/netflix-abandons-plan-to-rent-dvds-on-qwikster/?scp=2&sq=netflix&st=cse

http://www.youtube.com/user/JeffreyHayzlett?feature=mhee

http://www.adweek.com/news/technology/netflix-reverses-its-qwikster-rebranding-135673

http://www.cnbc.com/id/44851424

http://mediadecoder.blogs.nytimes.com/2011/10/10/netflix-abandons-plan-to-rent-dvds-on-qwikster/ 

http://news.cnet.com/8301-31001_3-20118063-261/qwikster-nixed-netflix-catches-some-flak/

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