With a miscalculated stroke of the pen, well, an untimely e-mail, Netflix has made its first major blunder in the online, streaming video wars. Netflix could end up losing money as well as help Apple cement its relationships with its movie watching customers.
Yesterday, Netflix mailed a notice to al lits customers. Here’s what mine looked like.
Netflix message, 12 July 2011
In my case, the increase in cost, to keep the equivalent service after September 1, amounts to a massive 50 percent hike. (US$11.99 -> $17.98.) That’s really tough to swallow, and like many others, I strongly suspect, it will force Netflix customers to fundamentally question what kind of service they want to take forward.
That’s a monumental jolt, and one that Netflix seems not to have fully thought out. That is, when the price jolt is that extreme and forces customers to immediately question the value proposition, in light of other services they have, it’s a business blunder. It’s no longer a no brainer that we’ll continue our Netflix service, as is, forever. Netflix has forced our hand, and that’s unwise.
Unlike Apple, a coherent vision doesn’t seem to have been in place. For example, Netflix added no extra cost streaming at a time when they knew that Internet streaming would become very popular. Instead of introducing it as an extra cost item, Netflix tried to boil our frog, offered it for free, but now they have to face the music. Other similar companies bite the bullet and slowly raise prices, closely monitoring the customer attrition.
Here’s the thought process that I, most of the TMO staff, and I think many other people are going through. “I have several other sources for the latest movie releases, releases that Netflix doesn’t typically offer: Apple TV, satellite/cable VOD, and Red Box to name a few. I pay for these relatively recent releases, and the video quality is fairly good, almost DVD quality. Then when I want to watch a second tier movie for free, I go to Netflix. Why should I keep paying for the delivery of DVDs?”
In my case, that means that my monthly cost will drop from $11.99 to $7.99 month. Netflix will lose money with me and perhaps worse, submerge itself with all the other online sources I have, Roku, Apple TV, and DIRECTV VOD. No more red envelopes takes a away a big connection, a special relationship, a ritual with the customer. The obsession with managing our DVD queue was also a hallmark relationship with Netflix that will now disappear earlier than planned. It was already unwisely removed from the iPad.
Of course, there are some downsides. Apple TV doesn’t have a lot of the old, warm fuzzy, legacy movies that Netflix has available on DVD. On the other hand, if I really want one of those, I might be able to find it at Amazon or at Wal-Mart on DVD for US$5. So it may not be a big concern for some. Others in rural areas will, to be sure, maintain their mail service, but, I surmise, not enough to keep Netflix from losing money overall.
Apple has sold a boatload of second generation Apple TVs. Apple has a coherent vision of what to deliver and what to charge. I know that when my wife and I are looking for a great new movie to watch, like The Adjustment Bureau, we go first to Apple TV’s new releases. We don’t have to wait for mail delivery. If that doesn’t work, we scrounge around for freebies on Netflix, buried as it is under the Internet menu. The one movie we have in a red envelope under the TV may not be the one we want to watch at the moment. Netflix couldn’t have opened a bigger door for Apple.
Finally, if this was a plan by Netflix to make a lot more money, it isn’t going to work in this economic climate. People prioritize. If this was a plan by Netflix to accelerate the demise of its DVD-by-mail service, it’s going to work nicely, but also damage the customer relationship in several ways mentioned above. Perhaps Netflix thinks that it has the unquestioned loyalty of its customers who won’t opt for, mix and match, other competitive services. Perhaps they think that merging in, indistinguishable from other streaming services amongst our TV system components, will not be a problem.
Netflix could be very mistaken.