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Thursday, August 30, 2012

Netflix Needs to Prepare for War

In the battle for supremacy in the online video streaming arena, Netflix's (NFLX) most serious wounds have been self-inflicted. The field is thick with competitors, but it isn't playing for blood. It seems as if they are content to sit around and wait for Netflix to fall on its sword. Surprisingly, this tactic actually appears to be working.

Netflix experienced its first self-inflicted wound when Andy Rendich, Netflix chief service and operations officer, announced that it would begin charging separate fees for its DVD and streaming services. The fee restructuring took effect immediately for all new subscribers and on Sept. 1st, 2011, for all current subscribers. The blogosphere blazed with outrage over the 60% price increase. Netflix CEO Reed Hastings managed to rub salt in the wound with his dismissive attitude toward the outcry from subscribers. Hastings' hubris is summed up perfectly in his now infamous quote: "It's something we'll monitor, but Americans are somewhat self-absorbed." Those are words I expect he would like to take back.

The next wound came 17 days after the price hike took effect for current subscribers, as Hastings offered some reflections and explanation for the price hike and announced that the company would be split up into Netflix and Qwickster. Netflix would be the streaming business and Qwickster would be the DVD by mail business. This would take place in a "few weeks" and would require subscribers to manage their DVD and streaming services from separate websites, with separate logins and passwords. Read more...

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