Whitney Tilson wrote a lengthy thesis of why he is (currently is not short) NetFlix (NFLX, Financial) http://seekingalpha.com/article/242320-whitney-tilson-why-we-re-short-netflix in December 2010. He was 100% right (the company is down 55% since July 12, 2011) but his timing was off and he ended up covering his short.
Below are his latest comments about the company:
We havenât had a position in Netflix for quite some time, so donât follow it as closely as we used to, but have been watching with interest the price increase for the DVD-delivery service and, with the recent announcement/letter to customers, the creation of a separate company, Qwikster, for this dying business. This is going to make a fascinating business school case study about a timeless dilemma that many, many businesses have faced: what do you do with the old buggy whip side of the business as the world increasingly moves to automobiles?
Itâs clear that the DVD-by-mail business is dying rapidly, so the correct strategy it to milk it for cash while investing to maintain its lead in the streaming area. What Netflix is doing is very bold and might well pay off, despite massive anger among customers (gee, what a shocker that they donât like a price increase, but $8/month for unlimited streaming PLUS the DVD-by-mail service was ridiculously cheap and unsustainable). But did Netflix move too quickly and/or too soon? (Perhaps) Did it come up with a bad name? (I think so â the article below suggests âNetflix Classicâ, which I like a lot.) And is it a mistake to completely spin Qwikster off and make customers use two web sites, enter their credit card info twice, etc. (Yes!) I think Netflix needs to fix these mistakes â but leave the price increase in place.
This could pay off big time or be a disaster â and anyone who claims to know for sure which is deceiving themselves, which is why we continue to think this isnât a good short OR a good longâŚ
Below is the full letter from Reed Hastings, two comments on his letter on the Netflix blog (which already has nearly 23,000 comments), and two articles â the 2nd one is particularly insightful:
How bad is the whole Qwikster idea? Let us count the ways:
1. The name. One sign of poor branding is how many ways there are to misspell what youâre looking for. Expect a surge of Google searches for Quickster, Quikster and Qwickster â none of which are currently redirected to the correct website. Nor does the name seem to have anything to do with the product. âQwikâ suggests a discount supermarket or photocopy shop, while the generic â-sterâ ending was all the rage for startups ⌠in 2000. Now itâs primarily associated with companies that get sold off in a fire sale and become shadows of their former selves: see Napster, Friendster and Dogster. Youâd be better off calling the new company âQwik ânâ Saveâ.
2. Customer confusion. Will my DVD queue port over to Qwikster intact? Will the user interface look the same? Currently, Netflix tells you if the movie youâre searching for is available on disc or on streaming, and you can click on either button â will that go away? Nobody knows, and thatâs likely to cause customers to throw up their hands and leave. If Netflix had been smart about this launch, it would have prepared an FAQ at launch â not to mention secured the appropriate Twitter handle so it could respond to customers directly.
3. Fixes a problem no one needed fixing. Have you ever longed for a rebranding of Netflixâs DVD envelopes? Or thought to yourself, âIâd pay for both disc and streaming services if only they had separate names and separate websites?â Me neither, and thatâs what makes the move such a head-scratcher. Weâre told that Qwikster will also offer video games for rental. Thatâs great: Competitor Redbox rolled out the same service this summer. But Redbox didnât feel the need to rebrand itself in the process. Quite the opposite â weâd rather try out a new kind of rental if itâs from a known entity.
4. Broken trust. Tin-eared product roll-outs are one thing. But a tin-eared product roll-out at the end of an email apologizing for a previous tin-eared product roll-out? Itâs hard not to feel like youâre being taken for a ride at that point. Think of that moment in an argument between lovers or family members when an apology suddenly (and often unintentionally) transmutes into an offense even more outrageous than the one being apologized for.
Until today, Netflixâs only offense was that it had raised prices by 60% on a bunch of its customers. Now it leaves all its customers â the 22 million who stream, and the 15 million who rent DVDs â confused and uncertain about the future of the company.
But itâs not too late to walk things back. New Coke may have been an unmitigated disaster, but Coca-Cola eventually ditched it and is still standing strong a quarter-century later. Hastings might win a lot of that lost trust back if he moves fast, apologizes again, and comes up with less confusing branding for the DVD-by-mail service. Might we suggest Netflix Classic?
http://blog.netflix.com/2011/09/explanation-and-some-reflections.html
I messed up. I owe everyone an explanation.
It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. Iâll try to explain how this happened.
For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something â like AOL dialup or Borders bookstores â do not become great at new things people want (streaming for us) 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. Companies rarely die from moving too fast, and they frequently die from moving too slowly.
When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, âActions speak louder than words,â and we should just keep improving our service.
But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldnât have changed the price increase, but it would have been the right thing to do.
So here is what we are doing and why:
Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.
I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.
So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. Itâs hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to âQwiksterâ.
We chose the name Qwikster because it refers to quick delivery. We will keep the name âNetflixâ for streaming.
Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, and now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. Another advantage of separate websites is simplicity for our members. 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 Qwikster.com and Netflix.com 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 doesnât show up on Netflix, and vice-versa.
There are no pricing changes (weâre done with that!). Members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges.
Andy Rendich, who has been working on our DVD service for 12 years, and leading it for the last 4 years, will be the CEO of Qwikster. Andy and I made a short welcome video. (Youâll probably say we should avoid going into movie making after watching it.) We will let you know in a few weeks when the Qwikster.com website is up and ready. It is merely a renamed version of the Netflix DVD website, but with the addition of video games. You wonât have to do anything special if you subscribe to our DVD by mail service.
For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you. Weâll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.
Some members will likely feel that we shouldnât split the businesses, and that we shouldnât rename our DVD by mail service. Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast â it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further.
I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.
Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.
Respectfully yours,
-Reed Hastings, Co-Founder and CEO, Netflix
Hereâs a branding move that will be taught in school. Netflix has just announced that it will be splitting its company into two divisionsâand its DVD-by-mail service will be named âQwikster.â This is a name with failure written all over it. It practically rhymes with Friendster!
Netflix is rapidly burning through the customer goodwill it has built up over the last five years. With the recent pricing split/increase, Netflix undermined its reputation for good customer care. The risky move cost Netflix heavily in its subscriber count and share price.
Now comes Qwikster. The most remarkable thing about the launch is that in his letter to customers (pasted below), Netflix CEO Reed Hastings compares the companyâs DVD-by-mail service to AOL dialup and Borders bookstores. Qwikster is a new brand he expects to die.
I admire Hastingsâ newfound candor, but can you imagine being an employee at his company assigned to do a good job with this service? Moving from Netflix to Qwikster is a demotion. You wonder if theyâre even going to order new business cards for these people.
Netflix was immediately beset by more criticism from customers. The comments on Facebook,Twitter and YouTube reflect huge volumes of sincere, polite expressions of simmering annoyance. Itâs just shy of pitchforks and torches.
Netflix is now all-in on streaming, a service currently plagued by poor selection. This gamble might pay off, but I wouldnât bet on it. Why not? It benefits the company and annoys the customer.
Below are his latest comments about the company:
We havenât had a position in Netflix for quite some time, so donât follow it as closely as we used to, but have been watching with interest the price increase for the DVD-delivery service and, with the recent announcement/letter to customers, the creation of a separate company, Qwikster, for this dying business. This is going to make a fascinating business school case study about a timeless dilemma that many, many businesses have faced: what do you do with the old buggy whip side of the business as the world increasingly moves to automobiles?
Itâs clear that the DVD-by-mail business is dying rapidly, so the correct strategy it to milk it for cash while investing to maintain its lead in the streaming area. What Netflix is doing is very bold and might well pay off, despite massive anger among customers (gee, what a shocker that they donât like a price increase, but $8/month for unlimited streaming PLUS the DVD-by-mail service was ridiculously cheap and unsustainable). But did Netflix move too quickly and/or too soon? (Perhaps) Did it come up with a bad name? (I think so â the article below suggests âNetflix Classicâ, which I like a lot.) And is it a mistake to completely spin Qwikster off and make customers use two web sites, enter their credit card info twice, etc. (Yes!) I think Netflix needs to fix these mistakes â but leave the price increase in place.
This could pay off big time or be a disaster â and anyone who claims to know for sure which is deceiving themselves, which is why we continue to think this isnât a good short OR a good longâŚ
Below is the full letter from Reed Hastings, two comments on his letter on the Netflix blog (which already has nearly 23,000 comments), and two articles â the 2nd one is particularly insightful:
How bad is the whole Qwikster idea? Let us count the ways:
1. The name. One sign of poor branding is how many ways there are to misspell what youâre looking for. Expect a surge of Google searches for Quickster, Quikster and Qwickster â none of which are currently redirected to the correct website. Nor does the name seem to have anything to do with the product. âQwikâ suggests a discount supermarket or photocopy shop, while the generic â-sterâ ending was all the rage for startups ⌠in 2000. Now itâs primarily associated with companies that get sold off in a fire sale and become shadows of their former selves: see Napster, Friendster and Dogster. Youâd be better off calling the new company âQwik ânâ Saveâ.
2. Customer confusion. Will my DVD queue port over to Qwikster intact? Will the user interface look the same? Currently, Netflix tells you if the movie youâre searching for is available on disc or on streaming, and you can click on either button â will that go away? Nobody knows, and thatâs likely to cause customers to throw up their hands and leave. If Netflix had been smart about this launch, it would have prepared an FAQ at launch â not to mention secured the appropriate Twitter handle so it could respond to customers directly.
3. Fixes a problem no one needed fixing. Have you ever longed for a rebranding of Netflixâs DVD envelopes? Or thought to yourself, âIâd pay for both disc and streaming services if only they had separate names and separate websites?â Me neither, and thatâs what makes the move such a head-scratcher. Weâre told that Qwikster will also offer video games for rental. Thatâs great: Competitor Redbox rolled out the same service this summer. But Redbox didnât feel the need to rebrand itself in the process. Quite the opposite â weâd rather try out a new kind of rental if itâs from a known entity.
4. Broken trust. Tin-eared product roll-outs are one thing. But a tin-eared product roll-out at the end of an email apologizing for a previous tin-eared product roll-out? Itâs hard not to feel like youâre being taken for a ride at that point. Think of that moment in an argument between lovers or family members when an apology suddenly (and often unintentionally) transmutes into an offense even more outrageous than the one being apologized for.
Until today, Netflixâs only offense was that it had raised prices by 60% on a bunch of its customers. Now it leaves all its customers â the 22 million who stream, and the 15 million who rent DVDs â confused and uncertain about the future of the company.
But itâs not too late to walk things back. New Coke may have been an unmitigated disaster, but Coca-Cola eventually ditched it and is still standing strong a quarter-century later. Hastings might win a lot of that lost trust back if he moves fast, apologizes again, and comes up with less confusing branding for the DVD-by-mail service. Might we suggest Netflix Classic?
http://blog.netflix.com/2011/09/explanation-and-some-reflections.html
I messed up. I owe everyone an explanation.
It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. Iâll try to explain how this happened.
For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something â like AOL dialup or Borders bookstores â do not become great at new things people want (streaming for us) 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. Companies rarely die from moving too fast, and they frequently die from moving too slowly.
When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, âActions speak louder than words,â and we should just keep improving our service.
But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldnât have changed the price increase, but it would have been the right thing to do.
So here is what we are doing and why:
Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.
I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.
So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. Itâs hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to âQwiksterâ.
We chose the name Qwikster because it refers to quick delivery. We will keep the name âNetflixâ for streaming.
Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, and now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. Another advantage of separate websites is simplicity for our members. 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 Qwikster.com and Netflix.com 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 doesnât show up on Netflix, and vice-versa.
There are no pricing changes (weâre done with that!). Members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges.
Andy Rendich, who has been working on our DVD service for 12 years, and leading it for the last 4 years, will be the CEO of Qwikster. Andy and I made a short welcome video. (Youâll probably say we should avoid going into movie making after watching it.) We will let you know in a few weeks when the Qwikster.com website is up and ready. It is merely a renamed version of the Netflix DVD website, but with the addition of video games. You wonât have to do anything special if you subscribe to our DVD by mail service.
For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you. Weâll also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.
Some members will likely feel that we shouldnât split the businesses, and that we shouldnât rename our DVD by mail service. Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast â it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further.
I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.
Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.
Respectfully yours,
-Reed Hastings, Co-Founder and CEO, Netflix
Hereâs a branding move that will be taught in school. Netflix has just announced that it will be splitting its company into two divisionsâand its DVD-by-mail service will be named âQwikster.â This is a name with failure written all over it. It practically rhymes with Friendster!
Netflix is rapidly burning through the customer goodwill it has built up over the last five years. With the recent pricing split/increase, Netflix undermined its reputation for good customer care. The risky move cost Netflix heavily in its subscriber count and share price.
Now comes Qwikster. The most remarkable thing about the launch is that in his letter to customers (pasted below), Netflix CEO Reed Hastings compares the companyâs DVD-by-mail service to AOL dialup and Borders bookstores. Qwikster is a new brand he expects to die.
I admire Hastingsâ newfound candor, but can you imagine being an employee at his company assigned to do a good job with this service? Moving from Netflix to Qwikster is a demotion. You wonder if theyâre even going to order new business cards for these people.
Netflix was immediately beset by more criticism from customers. The comments on Facebook,Twitter and YouTube reflect huge volumes of sincere, polite expressions of simmering annoyance. Itâs just shy of pitchforks and torches.
Netflix is now all-in on streaming, a service currently plagued by poor selection. This gamble might pay off, but I wouldnât bet on it. Why not? It benefits the company and annoys the customer.
