GeekCast Radio

Netflix and Qwikster Strategy Analysis

September 30, 2011 39:15 EXPLICIT
GeekCast Radio Netflix and Qwikster Strategy Analysis
0:00 39:15
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About this Episode

TFG1Mike, Steve Megatron, and PecanCtMichael discuss the controversial split between Netflix's streaming service and the Qwikster DVD-by-mail business. They analyze the consumer frustration caused by the price increases and rebranding, while breaking down the long-term business strategy to transition customers toward streaming. The hosts also compare current alternatives like Redbox and Blockbuster.

You're listening to the GeekCast Radio Network,

a podcast. Hello and welcome to GeekCaster Radio.

This is a special episode. We already talked

about Netflix and video stores and all the other

happy stuff in episode 28, but since we talked

about that, Netflix has finally, the people that

actually work there, finally stepped up, took

ownership of the shitstorm that they've put us

users through in the last... A couple of months.

So I am TFG1Mike. One of your hosts joining me

is Steve Megatron. Hello. Hello. And he's been

on GeekCast radio before. You're mainly going

to hear him from ToyCast and all the other Transformers

podcasts. Peek on court, Michael. Hello. Hey,

how's it going? It's going. And we're basically

doing this because Michael had been talking on

Twitter about all the Netflix changes and stuff

like that, and the fact that they're actually

responding to the users and the fans and all

this and all that, so that's why we're here,

so take it away. Who, me? Yeah, you. Sure, okay,

I'll take care of that for you. Basically, you

know, The Führer started a few months back when

Netflix decided to raise their rates by 30%,

and not really explain it to anybody. And they

kind of couched it in such a way where they said

well, you know, we're not really charging you

more What we're doing is we're splitting up our

services between DVDs and streaming and Previously

these two, you know services were coupled together

and it's like you could get your DVDs But you

could also get unlimited streaming At the same

time for the same price right and and now they're

saying well if you want DVDs and streaming we

you can you can get both services, but you're

gonna pay significantly more Now my first thought

Was you know drop streaming because I my family

doesn't so much use streaming There's probably

two videos online or I should say two videos

on Netflix's online content there that are available

We actually watch I mean there's the boys will

watch For some reason Aidan loves this volcano

documentary from National Geographic and he'll

watch this over and over and over again Gavin

loves the 1967 Batman movie Which he will watch

66 is a 66. I'm sorry. Yeah, so 60 say he'll

watch that over and over and over again You should

get them watching Phineas and Ferb the entire

series is on there Probably should because they

love that show, too But but I mean that this

is the two shows that they watch now, you know

Christy and I are happy just to you know Get

the DVDs in the DVD selection is bigger And includes

more stuff that I want to watch which is you

know obscure Japanese horror movies and anime

Yeah, you know and and there's um, there's just

a lot more see I think Out of my queue, I have

a Netflix queue of about 400. 350, 400 somewhere

in there, it fluctuates, but 400 titles to send

to my home as a DVD. Of those, I think maybe

100 are available for streaming. So roughly one

out of four. Now, if I drop the DVD service,

that's a bunch of stuff I'm not going to be able

to see. If I drop streaming that's two movies

that my kids won't be able to see and maybe if

I'm lucky I can get those from Amazon comm for

ten bucks each So I'm kind of like, huh? Yeah,

seriously thinking about dropping streaming But

you know, of course we don't you know, we're

prepaid. It's just I'll let the bill slide Well,

the problem that a lot of people had is that

Netflix never Explain themselves They just did

it. They said ha ha you're gonna pay it suckers

and that was it They didn't say, you know, this

is the reason why we're doing this and I understand

From you know a business point of view that they

have to make deals with you know stars and TNT

and HBO and whoever is the the trademark owners

or the copyright owners of The TV shows and the

movies that they want to have streaming on demand,

you know They have to pay for the rights to do

this and I know just recently like they they

lost the rights just to Put out any of the stars

content through streaming, right? I think they

just announced that they got like Discovery Channel

or something like that. It's dream works. It's

coming in 2013 Yeah, so they mean they're getting

better. But what you have to remember is this

costs money Every time that they sign a deal

with discovery or dream works or somebody they're

they're spending a lot of money to do this and

the fact is This is a limited -time contract.

You may have a five -year contract with Discovery

Channel or a two -year contract with DreamWorks.

In those two years, if there's a, let's say,

you know, a million DreamWorks movies streamed,

well, DreamWorks may say, hey, this looks pretty

good. We might be able to get more money on the

next contract renewal. So then they might amend

the contract. Say, hey, I want twice as much,

or I want... To write into the contract where

we get a five percent up kick every every, you

know, two renewal cycles or something like that.

They can write that in and then legally enforce

it. It costs a lot of money. Netflix is going

to have to raise their rates. Yeah, but they

don't explain that they never came out and said,

oh, by the way, this is costing a ton of money

and we're going to have to pass it on to you

that nobody ever came out and said that. I mean,

I understand it. That's how it works. But it

would have been nice to. you know, say something.

You're not gonna ream us and not give us a reach

around. You know, at least try to massage our

egos a little bit so that we don't feel bad about

the 30 % more cash we're forking over every month.

Right, yeah. Okay, so that's where we start.

That's where it all starts. Actually, it was

a 60 % increase. Well, I think they started off

with a small increase. then Well, it wasn't small

but they started off with an increase to the

service and then I think three years three to

six months later then they kicked it up another

30 % and then announced that they were splitting

the services right now you now you have to pay

X amount for streaming and X amount for DVDs

and if you don't want streaming you can cancel

if you don't want DVDs you can cancel but 30

% extra either way, right if you will If you

want, and I think this applies to new customers,

not the existing, I'm not exactly sure, but I

read online that if you want both services, the

unlimited streaming and one DVD out at a time,

the total cost to the consumer for both services

is $15 .98 a month, $7 .99 for each service.

Up from $9 .99 back in the day. Right. Yeah,

so it so basically, you know for people who have

been with Netflix for a long time like me You

know who like the service who trusts the service.

All right, fine We're gonna pay the a little

extra money despite the fact that we feel swindled

and nobody explained why? You know fast forward

doesn't need to explain his deals. Yeah, of course

not Fast forward another Unless you're stuck

in the company fast forward another three to

six months and the CEO of Netflix Reed Hastings,

there's his name. I was looking on the website

here and I'm like, wait a minute. I don't see

it. So Reed Hastings comes out and says, all

right, fine. You know, I realize that I, we should

have been more upfront with you guys. We should

have been telling you what was going on all along.

And we apologize. We're going to make it better.

And my first thought is cool. They're going to

drop prices 30 % across the board. But that's

not what happened. What happened is they say,

here's what we're gonna do to make things better.

First thing we're gonna do is we're going to

completely decouple the DVD side, the DVD mail

to your home side, and the streaming video side.

We're gonna completely cut them apart and make

them their own businesses. And and the name Netflix

is gonna go to the streaming side Whereas the

DVD side is gonna get a new name called quick

stir Because it's hip as of about you know five

years ago the very early days of net 2 .0 well

in because what also happened was Read didn't

just post this on the Netflix blog. I got an

email The exact same thing that the blog says,

I got that in an email. And basically what it

says is the reason why they're changing that

to Quickster, why that name, why they chose that

name was because they want you to get your DVDs

quick in the mail. They want you to get them

quick in the mail. So that's why the name of

Quickster. You're killing me. I know. Killing

me, Reed. Killing me. And again... you know don't

insult my intelligence is so by the time you

get to the end of this email or The end of the

blog post or whatever however you came upon it

Within an hour of it being posted I had seen

it on Twitter Retweeted like 50 times and it

was on Facebook and everyone was like, oh my

god, what's going on here? And my first thought

Was clearly this guy's trying to derail his company,

you know, which which makes no sense to me because

He has been working hard for ten years to make

Netflix What it is and it's Netflix is like synonymous

with getting movies in in the mail It's it's

like when you say I'm gonna Google something

It's it's a verb that you use to describe it.

You say I'm gonna Netflix this movie At least

I say that I'm sure there are other people to

say this as well, right? I don't know Alright

back me up here people What it comes down to

is when you start using the name of your company

to describe as a verb, to describe what you're

doing with the movies, if you're going to say,

I'm Netflixing a movie, you don't just change

the name of your company. That is like the corporate

kiss of death. You just don't rebrand anything.

I worked at Playboy for several years. And they're

all about the brand. They have a brand that's

been around for 50, 60 years. They don't mess

with it. If you try to mess with it, they have

a fleet of lawyers that come down in your head

with cease and desist letters and saying, we

will sue you back into the Stone Age. You don't

mess with the brand name. Same with Netflix.

It's important to hold onto this name. We're

going to keep it. We're going to ride this into

the next century. you don't mess with the brand

name. And here's what he's doing. He's saying,

all right, I'm going to take my core business

model. This is what's been making us money for

the last 10 years. I'm taking this business model,

and I'm going to piss all over it by giving it

some stupid ass name. Quickster, what the hell?

And basically renaming it, rebranding it into

something that nobody's going to remember tomorrow.

I'm not going to Quickster a movie. That makes

no sense to me. It's just it's it's it's harmful

to my ears to say this. I mean they couldn't

have said This it's just sounds so dumb. It's

like Friendster. Whatever happened a Friendster

What was Friendster, I mean it's that like Sharing

friends over streaming or I don't yeah, I was

never a part of Friendster So I have no clue

what Friendster is. I've heard of it, but So,

naming your business after something that's died

doesn't make a whole lot of sense. Unless, you

know, it's like a dead relative and you're trying

to pay homage or something. Regardless, what

it comes down to is, to me, it looks like he's

trying to kill his business and offend me, you

know, personally. So, it was hard. By the time

I got to the end of this, It's like, all right,

so what you're saying now is Netflix is gonna

be the name of the streaming. So you have a streaming

company. They're two separate companies now.

We're talking two separate billing records. I'm

not paying one company for both streaming and

DVDs, right? I'm paying two separate companies

now. So I gotta set that up. You know two times

the worries that someone's gonna get hacked and

my credit card numbers are gonna be you know

spilled out across the internet It's just it

just didn't sit well with me but I mean I You

know, I understand the business aspect of it

I I have an MBA I I see where this was going

now and Want to say that this is the part of

the conversation where I can end my rant about

what an awful idea this is and kind of Change

tack and go in a different direction and kind

of explain why maybe it wasn't such a bad idea

But before I do that, I want to give somebody

else a chance to complain Steve Yeah As far as

the the whole split off that they've done I am

that actually prompted us to drop the DVD part

Really yeah, we well streaming now. Yeah, we

just use the streaming now Because one you can't

get the latest movies anyway For the first month

or so it takes a while to get some of the latest

ones that are coming out Yeah, really quick before

you continue what I found out. I actually found

this up from our good friend Spada Apparently

it takes like for Netflix to get a brand new

likes like say red box gets Black Swan in In

order for Netflix to get it 28 days has to pass

from the initial DVD release Transformers Dark

of the Moon just came out as of 33 minutes ago

Netflix won't have that or red box will not have

that or anything like that until 28 days after

the initial DVD release of You know people actually

buying the DVD so It takes Netflix a while to

get new movies like brand new movies, right?

Well, this just opens up a nice opportunity for

red box. I mean I just started using red box

Almost as soon as they made the announcement.

I went out and got a red box account. Yeah Continue

Steve, sorry. Well, I mean we we use red box

too, but I mean black buster also I mean as much

as I don't like them they've dropped their their

prices of their one out at a time which used

to be $25 before dish network bottom out and

Like right now for late for this month and next

month. They've got it for 749 and then it It's

only for like the first month and it goes up

to 14 But you can go into the store and then

swap it out as much as you want throughout the

day Whereas netflix you may you may get two to

three discs a week if you're lucky For that quickster,

but I mean and or For uh blockbuster. Yeah, you

just Go in so I mean that's in that sense. It's

nicer But to me, it's not worth spending the

extra nine dollars When I can spend a little

over that and I can get as many as I want for

the month Yeah, right at another pass at another

place and Granted blockbuster doesn't have the

streaming yet Which blockbuster also gets more

content? to their stores than any of these other

Services, so I mean it's it's gonna be kind of

a close battle once blockbuster enters that streaming

Like Netflix, but I can't remember the last time

I went into a blockbuster brick -and -mortar

store Well, what Steve is saying is that the

difference between Netflix and the blockbuster

like not Netflix the difference between red box

and blockbusters blue boxes is that Red box you

have to you have to wait still on some of them.

Well, you have to wait still on some of them,

but You have to, like say you go on Redbox's

website, you go on there, you get your movies,

you go to the kiosk, you pick them up, you have

to then take them back to the kiosk, return them,

and then go back home or stand there and order

more. Whereas the Blue Box is for Blockbuster,

what Steve is saying is that if he and his wife

go to the Blue Box and they get two movies at

a dollar five, a dollar six a piece, Instead

of going back to that Blue Box kiosk, they can

actually go to a Blockbuster store that may be

open and they can exchange them there. Well,

that's not even using the Blue Box. Blue Box

you can't exchange at the store. Oh, you can't?

No, that's completely different. No, I'm saying

you can rent through their pass at their brick

and mortar store. Sign up for this this media

pass which you can either rent games movies blu

-ray any of that stuff and Get it for that set

price, and then you just take the disk and then

keep swapping them out every time Okay, I mean

granted their prices because we just went into

them are very comparable to family video now

So they're they're not that five six dollars

for a one disk. You know rental Yeah, so they

have come down. So I mean you're gonna see a

lot of people jump and ship back to blockbuster

because of Them raising the prices and not saying

hey, you know, this is why we're doing it blah

blah blah and I could have seen if you know they

They would have you know Not only let people

know but not raised it at that high Mm -hmm,

because I mean they basically doubled what people

were paying before Yep, and to me it's not worth

that because like I stated before I'm not gonna

do You know have to worry about if I'm gonna

get two to three discs a week Most of the time

I got like one maybe two Depended on how fast

they got it back out Yeah, so I mean it's I can

kind of see why they did what they did. But on

the other hand I That's why I just went ahead

and canceled the disk service and just kept the

streaming. For me, I've told the story before.

All of my mail goes through a business address

from where I'm living at this point in time because

this apartment building, neither the apartment

managers or the postal service will fix the mailboxes.

No mail is actually delivered to my apartment

complex because the mailboxes are broken. uh...

so i haven't i i never had a use for the dvd

service from netflix the streaming i can wait

for new releases that's why i use red box when

i want to because it's a uh... x -men first class

for and what else just came out uh... what well

i guess we could say dark of the moon you know

i could go to red box and get those right now

or whenever Whereas Netflix, I would have to

wait for them to be able to get the contracts

and this and the other thing. I use Netflix streaming

more for TV shows than I do for movies. I think

right now, the only movies I've watched on there,

the entire three or four or five months that

I've had the service, Full Metal Jacket, Die

Hard 1 and 2, and I think I started Demolition

Man. I don't remember if I did or not, but I

mainly use it for TV shows. But this price increase

in the fact, as Michael said, you're getting

two different billing charges. That's just ridiculous.

Yeah, to me, that's kind of asinine because I'm

not signing up for two different services. Yeah.

You know, leaving on one bill. I mean, there's

literally no real reason to have to split it

to a different company just to have the price

increase. One again, I guess it's they want to

create another brand You know kind of like My

space is a part of rubert murdoch industries

I know it's I know that's not a factual statement

at this point in time because obviously my space

has been sold and dead but You know where they

say quick stir a Netflix company. It's kind of

like saying Pixar is a part of the Walt Disney

Company now. They want to create a new brand

for the DVD service, and I can kind of see that,

but at the same time, the name is kind of stupid.

It almost sounds like one of those pyramid scheme

companies. Yeah, ain't that the truth? Honestly,

I think there's a reason why the name is stupid.

And I'll get into that later. Honestly, I think

what they're trying to do is dissuade people

anyway from the discs and just say, hey, just

do the streaming. Yep. I mean, the streaming

does have its advantages. If you have an internet

-connected television or an internet -connected

Blu -ray player, you can watch the streaming

on your TV. You don't just have to sit at your

computer and watch it. They have the mobile apps,

you can watch it on your phone if that's the

way you choose to. If you have a current gen

gaming system, PS3, Xbox, Wii, you can watch

it through that. So I mean, the streaming isn't

just for the internet connected PC or Mac. Right,

no, you can connect to your consoles. Yeah. You

can connect everything. Yeah, through the Wii,

or the PS3, or if you've got a DVD player that'll

handle that. My TV actually has Wi -Fi built

in, so I can stream directly from my TV. Awesome.

Yeah, so it's, I mean, streaming, it's not quite

there yet, but it's getting there. And again,

for me, like I said, it's great that they have

the deals in place for a lot of these old, like,

I can watch almost every episode of Cheers, every

episode of The Bill Cosby Show, Numbers, Angel,

Stargate SG -1, Stargate Atlantis, Stargate Universe,

all the Stargate things are on there for streaming.

There's plenty of advantages for it, but if you're

one of those people that just wants new movies,

you're SOL on the streaming. So what else do

we want to talk about these new news updates

here for Netflix? Well, I was gonna basically

go into why this isn't a bad idea Okay, and why

yeah, basically again I was horrified when I

first heard about this I said this is a horrible

idea and they're shooting themselves in the foot

and it's gonna ruin their business, which doesn't

make any sense, you know, they've You know basically

built this business up for the last ten years

and why would they suddenly destroy it? Right

well There's a reason they're purposefully trying

to destroy it Okay, that's what it comes out

to but there's a business reason for them to

do this basically, you know Reed Hastings has

taken a look at the long -term outlook of DVD

to home sales mm -hmm and said and you know the

writing on the wall here is that as the as internet

bandwidth increases And, you know, it's increasing

everywhere. Soon we're going to have 4G speeds

on everything that's just lightning fast. Not

just on phones, but everywhere. Right. As Netflix,

the streaming company, makes more deals with

content providers, you're going to get a lot

more content, you're going to get a lot more...

The ratio of movies that I can DVD versus movies

that I can stream are going to go from you know,

four to one to one to one. We're going to be

able, you know, I'm not going to have 400 items

on my queue of which only 100 of them I can stream.

It's going to be I can I can stream everything.

All of their content available on DVD will be

streamable. Right. And probably within five to

10 years. So he's basically got five years to

wean the public off of. Quickster let's say so

the He wants to get out of the mailing DVDs to

people business. He spends I should say he but

Netflix is Spending an awful lot of money in

postage. They're spending an awful lot of money

in Warehousing all these DVDs the pull system

Making the envelopes cost money? Exactly. These

red envelopes that everybody recognizes and loves

to see in the mail cost a buttload of money.

And there's an awful lot of overhead that goes

into overhead costs. These are sunk costs as

you have to pay all the time. It's it's I don't

want to say prohibitively expensive because they've

been doing it for 10 years and they've been doing

it very very well They've got this down to a

science to the point where they're spending the

least amount of money that they could but it's

still a lot of money and When you look at streaming,

you know granted there's a new set of costs You

have to pay for the servers. You have to pay

for the bandwidth, etc, etc, but you're not paying

posted You're not paying printing costs. You're

not paying DVD storage and warehousing and pull

systems and All the rest of the overhead that

goes into this I mean that can just be scrapped

and He'd like nothing more than to save all those

costs and be able to put that money Toward content

deals on the streaming side, right? So, you know,

the only way he's gonna be able to do this is

if he kills off that direct -to -mail business

You know and what's the best way to do that?

Well, let's branch it off from our from our the

rest of our business You know and give it a dumb

name That nobody's gonna remember and most likely

no one's gonna want to use and people like Steve

are gonna cancel their DVD altogether Well and

see this is the thing too it also By them splitting

it off right now and moving people that have

that service It ensures that when that company

goes bankrupt. It doesn't hurt Netflix Exactly,

you can quietly shutter a company called quickster

But you're not gonna be able to quietly shutter

Netflix. It's been around for ten years Right

that that's and that's hedging your bets basically,

so He is he's looking at the long term. He's

saying five years down the road ten years down

the road Net or Netflix the streaming company

is going to be what Netflix the direct mail company

used to be except without a buttload of overhead

and Everything's done just through the internet

which, you know, for most people, they're going

to get anyway. Almost all the other customers

who would be getting DVDs in the mail are going

to have the internet. And most likely, one of

the, you know, they're going to have some type

of streaming device, either be it a computer

or a console game or a TV or a DVD player. Most

DVD players have some type of streaming available

now, except, you know, like the $10 ones you

buy at Walmart nowadays. Within five years even

the $10 ones you buy at Walmart will be able

to stream down Netflix That's my prediction.

Yeah easily. So he's looking five years down

the road ten years down the road. He sees Where

his business is gonna go he sees that if he sticks

with DVD by mail that business is gonna die in

five years and Blockbuster is gonna be taking

that streaming business or red box will be taking

that streaming business Well red box won't but

blockbuster might You know Amazon might be taking

that streaming business iTunes might be taking

that streaming business He doesn't want to lose

that in five years He sees you know the writing

on the wall and he's moving his core business

his new core business Moving that core business

forward by killing the old business on purpose

Does that make sense? Oh, it makes perfect sense

It didn't make sense, you know to me. I'm like,

what is he doing? You're shooting himself in

the foot. This is horrible. Oh my god That's

exactly what he's doing and he's crazy like a

fox But I mean you got to do it. You got to do

it. You got to put a bullet in the head of that

direct -to -mail You know before you know He's

just not gonna let this drag out forever ten

years from now. He's not gonna be sending DVDs

by mail to the last you know five thousand stragglers

Maybe there will be five thousand stragglers

and for those people they'll be quickster Until

he puts a bullet in the head a quickster But

you know well until quick sir becomes cost -prohibitive

It'll stick around but for right now He's putting

all of his eggs into that Netflix basket and

the streaming media basket Because again five

years from now ten years from now. That's where

the money's gonna be oh Yeah, and he'll be first

to market with with the infrastructure in place

already Exactly So yeah, I understand it completely

now now that it speaks. You know now that I've

read Online people who basically explain and

there's I sent you guys a link on what I read

first and there's a couple other articles that

I read explained a little more but Somebody else

that either retweeted or tweeted that that linked

to that comic book strip Yeah, I think I don't

think it was me I think it might have been somebody

else, but I read the comic book strip about the

make Netflix. Yeah or mcnetwitch and that yeah

really that's kind of like again when i said

when i said in the beginning it was the price

change and they charged it charges you more and

then it's like okay well so you're charging me

30 more for my mcnetwitch all i want is a sandwich

with extra mayo you know and they say well you

know we'll explain it in a week and then you

come back in a week and they say well guess what

we split up into two separate companies so now

you can get your You know your hamburger bun

here, but you have to go across the street to

get the actual You know chicken to go in in with

your extra mayo I mean in that it was funny It

didn't it didn't address the root of the problem

to me and the root of the problem was You know,

why why why would they do this yes the underlying

cause It was funny though I think the guy ended

up going across the street for his chicken patty

So yeah for me I'm just all about the streaming

so it doesn't really affect me for those of you

who are about both services, you know Sorry about

your luck Any final thoughts Steve? Um Other

than it makes perfect sense what we're talking

about. I mean it I don't really see any problem

with it Yeah I see a problem with it. No, I shouldn't

say that. As a consumer, I'm kind of pissed still,

because I want to get my streaming and my DVDs

from the same place at the same time on the same

bill 30 % less than what they're charging me.

As a consumer, again, you know, as a business

analyst, I completely understand why they did

what they did, even if they didn't explain it

very well. or in a timely manner. Right. But

again, as a consumer, it's like, well, damn it,

you know. And as far as I'm concerned, I don't

think streaming is at the place now. It's not

five years from now. It's where it's at now.

And where it's at now is not satisfying me. I

would most likely cancel my streaming if my wife

would let me. OK. OK. I have a mission for you.

Sure. Between now and the next Transformation

Animation Podcast recording. I want you to actually

look at a lot of the stuff that is on the streaming

side and tell us next week if your opinion of

streaming has changed because there really is

a lot on there. Right. Well, I'm again, I'm just

going by what's in my queue. I've got 400 items

in my queue because you only have two damn things

in your queue. Look at some of the genres, look

at some of the categories on there, and I've

gone through and I've looked through a lot of

the categories on there, a lot of the stuff on

there, and as I've gone through and said, oh

hey, there's Demolition Man, oh hey, there's

Die Hard or Terminators on there, or you know,

it's like, oh wow, a lot of these cool things

that I used to love watching and I might want

to watch again. So... Right. You have one week,

sir, to explore stuff outside of your queue.

Oh, my queue's pretty massive. I don't know.

That's what she said. Wow. All right, so we hope

you enjoyed this episode of GeekCaster Radio.

Wish you'll join us next time when we'll be starting

the music spotlight with our parents' music.

We'll be talking about music from the 60s and

70s. For now, I am TFG1Mike with... Michael Wilson

and Steve Megatron Phillips Thank you for listening

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