Netflix messes up
The terror of the film and television business has become a lot less scary
It seldom pays to annoy your customers
LAST December Jeff Bewkes, Time Warner's boss, sneered that Netflix threatened media about as much as the Albanian army threatened world peace.
Few were fooled. Netflix, which hires out DVDs through the post as well as streaming films and television through the internet,
had already impoverished Hollywood by training people to rent DVDs instead of buying them.
It was starting to lure people away from pay-television.
But then the army began marching in the wrong direction, and its general shot himself in the foot.
On September 1st Netflix began imposing new prices on its 25m subscribers.
Americans had been able to pay $9.99 a month for DVDs through the post as well as the right to stream some films and programmes.
Netflix would henceforth offer them a choice:
$7.99 a month for streaming,
or the same price for DVDs.
People who wanted both would pay $15.98.
Customers don't like it.
They have jammed the firm's switchboard and posted 82,000 largely hostile comments on its Facebook page.
Netflix told investors to expect a rare loss of subscribers, driving its shares down.
The company's reputation for top-notch customer service has been tarnished.
So Netflix's founder and chief executive, Reed Hastings, tried to explain himself—and made matters far worse.
On September 18th Mr Hastings explained that the company feared being left behind by technological change, like AOL with its dial-up service.
It was separating DVDs from streaming because its future lies in streaming. The DVD-by-post service,
he said, would move to a new website, with a new billing system, and be renamed Qwikster.
It's an odd name and a big mistake.
As The Economist went to press, Netflix shares were trading around $130—a steep decline from their July peak of $299.
Netflix has made a tactical error and treated its customers shabbily.
It has also jumped too hastily into the future—as if Renault were to declare that electric cars are the future and rename its petrol-car division Qwikmobile.
Worst of all, Netflix has disregarded a big strategic advantage.
DVDs may be old media, but they come with strong legal protections.
As soon as a DVD is released by a Hollywood studio,
roughly four months after the film appears in cinemas, Netflix can start renting it.
To stream a film via the internet, in contrast, Netflix must strike an agreement with the studio or TV firm that owns it.
As Netflix has become richer and scarier, negotiations have become harder.
The company must wait eight or nine years to stream many studio films.
A few media firms refuse to sell any streaming rights at all.
When Netflix combined DVDs and streaming, it offered both a vast selection of up-to-date content and the prospect of instant gratification.
By forcing customers to choose between the two, it has revealed the weaknesses of both of its offerings.
Netflix isn't like the Albanian army—it is far more dangerous than that.
But it seems to have trained its guns against itself.