Netflix has done another 180. Customers got angry about all of the ridiculous changes at Netflix, and now Netflix is trying to un-ring the bell on the stupidest move the company has made in years.
Qwikster was ridiculed as a stupid name, but now the name seems sort of fitting, because the fledgling company did not last very long. The Qwikster spin-off (Netflix's answer to New Coke) proved so profoundly unpopular with consumers, Netflix scrapped the new company, which was really just Netflix in disguise. For now, Netflix plans to keep its DVD-by-mail and streaming services under one name and one Web site.
It is interesting to see how quickly Netflix will backtrack when the company realizes customers have become unacceptably angry. Also note Netflix did not kill Qwikster until well after the consumer backlash got out of control. The Qwikster name was already showing up in advertisements. It was practically a done deal. This mistake had to cost Netflix a lot of money, and it has cost the company a huge amount of credibility. The stakes were pretty high on this Qwikster launch. If the subscribers had not revolted so harshly, there is no doubt they would have gotten stuck with Qwikster.
If you were hoping Netflix is going to take back the 60% rate hike and two separate plans for DVD-by-mail and streaming, keep hoping. The higher fees and service split are here to stay. Although, past behavior indicates that Netflix will reverse its course if enough subscribers cancel.
Netflix has truly failed on this split of DVD-by-mail and streaming. What was once a beacon of innovation (for some) in the business world now looks like a sad, reactive, desperate, and pathetic company. With this whole service-split debacle, Netflix sort of came off looking like, well, Blockbuster a few years ago. Way to go, Netflix. Start imitating the company you once humiliated.
10/11/2011
9/22/2011
5 Netflix and Qwikster Alternatives
If you are looking for alternatives to Netflix and Qwikster, Jeffrey Van Camp at Digital Trends has a few suggestions in the article, "5 Netflix and Qwikster Alternatives."
9/19/2011
Qwikster on Twitter, Oops!
Netflix really did not think this Qwikster thing through. Check out Jason Castillo's Twitter account.
@Qwikster
Jason Castillo's finances are about to get a lot better. He is about to get a big, fat check from Netflix.
Jason Castillo, hold out for huge money, and consider hiring an attorney so Netflix does not rip you off in the contract. Netflix is worth billions of dollars, and they will have to spend millions advertising Qwikster. Do not let Netflix take advantage of you. Think of all the money you could ever expect to get from Netflix and then triple it. Netflix needs to buy your Twitter account more than you can possibly imagine. Do not be afraid to get greedy. Netflix never is.
As of the morning of 9/22/11, Jason Castillo's @Qwikster account is showing some odd activity. A couple of days ago, he made mentions of offers to buy his Twitter handle, negotiations, and contracts. Now, however, all of those mentions have been removed. The pot-smoking Elmo image was one of the first things to go. At the time of this update, Jason Castillo had no tweets since 9/19/11, leaving a gap of a few days. Curiously, the tweets end the same day Reed Hastings stunned the investment world by announcing Qwikster as part of a half-hearted apology.
Jason Castillo must either have someone advising him to remove mentions of Netflix, or maybe Netflix has requested he not mention any negotiations. Clearly, something is going on. Do not be surprised if Netflix/Qwikster owns that Twitter account pretty soon. Hopefully, Jason Castillo has someone smart guiding him through this process.
Jason Castillo suddenly came back with a flock of tweets late last night. The pause in Tweet activity was strange. One must wonder if Netflix realized Qwikster is a ridiculous name and they decided to go with something less cheesy.
@Qwikster
Jason Castillo's finances are about to get a lot better. He is about to get a big, fat check from Netflix.
Jason Castillo, hold out for huge money, and consider hiring an attorney so Netflix does not rip you off in the contract. Netflix is worth billions of dollars, and they will have to spend millions advertising Qwikster. Do not let Netflix take advantage of you. Think of all the money you could ever expect to get from Netflix and then triple it. Netflix needs to buy your Twitter account more than you can possibly imagine. Do not be afraid to get greedy. Netflix never is.
-- Update 9/22/11 --
As of the morning of 9/22/11, Jason Castillo's @Qwikster account is showing some odd activity. A couple of days ago, he made mentions of offers to buy his Twitter handle, negotiations, and contracts. Now, however, all of those mentions have been removed. The pot-smoking Elmo image was one of the first things to go. At the time of this update, Jason Castillo had no tweets since 9/19/11, leaving a gap of a few days. Curiously, the tweets end the same day Reed Hastings stunned the investment world by announcing Qwikster as part of a half-hearted apology.
Jason Castillo must either have someone advising him to remove mentions of Netflix, or maybe Netflix has requested he not mention any negotiations. Clearly, something is going on. Do not be surprised if Netflix/Qwikster owns that Twitter account pretty soon. Hopefully, Jason Castillo has someone smart guiding him through this process.
-- Update 9/23/11 --
Jason Castillo suddenly came back with a flock of tweets late last night. The pause in Tweet activity was strange. One must wonder if Netflix realized Qwikster is a ridiculous name and they decided to go with something less cheesy.
Qwikster, the Netflix Version of New Coke
On Mashable, Chris Taylor sums up what most marketing executives are probably thinking today about Netflix's horribly bungled launch of Qwikster. Yes, Qwikster just could turn out to be Netflix's New Coke.
"Qwikster From Netflix: The Worst Product Launch Since New Coke?"
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| New Coke |
On Mashable, Chris Taylor sums up what most marketing executives are probably thinking today about Netflix's horribly bungled launch of Qwikster. Yes, Qwikster just could turn out to be Netflix's New Coke.
"Qwikster From Netflix: The Worst Product Launch Since New Coke?"
Netflix Quickly Takes Cover with Qwikster
Facing an overwhelming backlash from subscribers, Netflix CEO, Reed Hastings has come forward and apologized for what has probably become the biggest public relations debacle in the history of Netflix.
When Netflix abruptly spilt its DVD-by-mail service and streaming video service into two separate services and effectively increased subscription fees by 60%, many--perhaps millions--of Netflix's subscribers became angry and threatened to close their accounts. Arrogantly, Netflix did little to manage the crisis. Netflix's attitude seemed to be: We are the leader in the video rental business. If you want our services, you will accept delivery however we choose, and you will pay whatever we tell you to pay.
Netflix did not use those exact words, but that is what the public heard. Rightfully so, the subscribers rebelled and began canceling their subscriptions.
Under such pressure, one would assume Netflix might retreat and come up with a plan to assuage consumer anger, but Netflix did not do that. Sure, Reed Hastings/Netflix apologized for being arrogant and communicating poorly, but that is about it. In a further act of arrogance, Netflix has chosen to rename its original DVD-by-mail service and permanently break it off from Netflix (as if that will fool enough people).
The new name is Qwikster. Yes, Qwikster is a cheesy hipster appellation, and this playfully misspelled name is so 1990s. Sure, Qwikster sounds like some shady file-sharing Web site from Romania, but it is actually a repackaging of Netflix's DVD-by-mail business. (Yes, this probably will fool enough people.)
If you want to be a member of Qwikster, you are going to have to pay for it, and it will show up as a separate charge on your credit card each month. Even if you maintain a Netflix subscription for streaming content, your credit card statement will have a charge for Netflix and another charge for Qwikster.
Adding to the inconvenience for subscribers, Netflix and Qwikster are to function independently. For example, if you review a movie on Qwikster, the review will not appear on your Netflix account, even though you may be paying for both services. Also, if you need to update your credit card information, email address, home address, phone number, or other account information, you will have to do so twice: once on the Netflix site and once on the Qwikster site.
Some consumers may feel more comfortable with paying for two subscriptions when the subscriptions are under different names, but the reality has not changed. Netflix has reduced subscriber benefits and is charging significantly more for significantly less. If making payments under two different company names makes subscribers feel better about it, then so be it.
When Netflix abruptly spilt its DVD-by-mail service and streaming video service into two separate services and effectively increased subscription fees by 60%, many--perhaps millions--of Netflix's subscribers became angry and threatened to close their accounts. Arrogantly, Netflix did little to manage the crisis. Netflix's attitude seemed to be: We are the leader in the video rental business. If you want our services, you will accept delivery however we choose, and you will pay whatever we tell you to pay.
Netflix did not use those exact words, but that is what the public heard. Rightfully so, the subscribers rebelled and began canceling their subscriptions.
Under such pressure, one would assume Netflix might retreat and come up with a plan to assuage consumer anger, but Netflix did not do that. Sure, Reed Hastings/Netflix apologized for being arrogant and communicating poorly, but that is about it. In a further act of arrogance, Netflix has chosen to rename its original DVD-by-mail service and permanently break it off from Netflix (as if that will fool enough people).
The new name is Qwikster. Yes, Qwikster is a cheesy hipster appellation, and this playfully misspelled name is so 1990s. Sure, Qwikster sounds like some shady file-sharing Web site from Romania, but it is actually a repackaging of Netflix's DVD-by-mail business. (Yes, this probably will fool enough people.)
If you want to be a member of Qwikster, you are going to have to pay for it, and it will show up as a separate charge on your credit card each month. Even if you maintain a Netflix subscription for streaming content, your credit card statement will have a charge for Netflix and another charge for Qwikster.
Adding to the inconvenience for subscribers, Netflix and Qwikster are to function independently. For example, if you review a movie on Qwikster, the review will not appear on your Netflix account, even though you may be paying for both services. Also, if you need to update your credit card information, email address, home address, phone number, or other account information, you will have to do so twice: once on the Netflix site and once on the Qwikster site.
Some consumers may feel more comfortable with paying for two subscriptions when the subscriptions are under different names, but the reality has not changed. Netflix has reduced subscriber benefits and is charging significantly more for significantly less. If making payments under two different company names makes subscribers feel better about it, then so be it.
9/18/2011
Alternatives to Netflix
With Netflix hiking prices aggressively, consumers are being forced to consider closing their Netflix accounts and finding better entertainment values from other sources. If you would like to help those soon-to-be-liberated Netflix subscribers, click on Comments below and post your recommendations for finding inexpensive entertainment while enjoying a Netflix-free lifestyle.
Get creative. For some people, one entertainment source may not be adequate. The best solutions probably involve combining multiple options to get the most for the money. Netflix competitors, downloads, used DVDs, kiosks, stores, Web sites, set-top boxes, pay-per-view, on-demand video, consoles, cable, satellite, DVRs, etc. are all on the table. Never has then been more ways to easily access millions of hours of entertainment. There should be excellent alternatives to Netflix for nearly every situation.
Get creative. For some people, one entertainment source may not be adequate. The best solutions probably involve combining multiple options to get the most for the money. Netflix competitors, downloads, used DVDs, kiosks, stores, Web sites, set-top boxes, pay-per-view, on-demand video, consoles, cable, satellite, DVRs, etc. are all on the table. Never has then been more ways to easily access millions of hours of entertainment. There should be excellent alternatives to Netflix for nearly every situation.
9/17/2011
Greedier Than Netflix (for Now)
In, the movie, Wall Street, Michael Douglas (as Gordon Gekko) uttered his most famous line: "The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit."
On the topic of greed, many people feel Netflix is getting greedy by taking advantage of their huge market share and hiking fees on many subscribers by up to 60%. Netflix may, in fact, be a greedy company; however, in Netflix's defense, there are actually some greedier entities. Here is a partial list of those that may still be just a little greedier than Netflix.
Wow, that's great screenwriting, and it has some raw truth to it. The quote also sounds like something one would expect to hear at a Netflix shareholder meeting.
On the topic of greed, many people feel Netflix is getting greedy by taking advantage of their huge market share and hiking fees on many subscribers by up to 60%. Netflix may, in fact, be a greedy company; however, in Netflix's defense, there are actually some greedier entities. Here is a partial list of those that may still be just a little greedier than Netflix.
- professional gamblers
- casino owners
- used car salesmen
- car dealership service advisors
- automotive finance specialists
- credit card companies
- two-year-old children
- drug dealers
- politicians
- bank robbers
- mortgage brokers
- Hollywood executives
- record companies
- pimps
- dirty cops
- third-world dictators
9/16/2011
Canceling Netflix? You Are Not Alone
Angry subscribers warned Netflix, but Netflix did not listen. Netflix subscribers threatened to cancel their subscriptions if Netflix raised prices. Netflix raised the prices anyway, and many subscribers appear to be following through on their threats.
If you are one of those incensed subscribers and you are ready to exit Netflix, you are not alone. Read "Higher Netflix Prices Equals Fewer Subscribers" by Michael Liedtke for the details.
If the Netflix member cancellations continue, it could possibly become fashionable to drop Netflix. These customer backlashes tend to take on lives of their own and snowball. Just ask the last company who dominated the video rental business, got too cocky, and started screwing around with their customers. How did that work out?
With the added revenue from much higher subscription fees, Netflix may very well weather this storm, but the New Red Menace may have gone a bit too far this time. We will just have to wait and see how many subscribers are going to continue taking the abuse from Netflix and how many are going to find somewhere else to wait weeks for new releases, rent scratched DVDs, and have their ISPs and computers blamed for streaming video problems.
If you are one of those incensed subscribers and you are ready to exit Netflix, you are not alone. Read "Higher Netflix Prices Equals Fewer Subscribers" by Michael Liedtke for the details.
If the Netflix member cancellations continue, it could possibly become fashionable to drop Netflix. These customer backlashes tend to take on lives of their own and snowball. Just ask the last company who dominated the video rental business, got too cocky, and started screwing around with their customers. How did that work out?
With the added revenue from much higher subscription fees, Netflix may very well weather this storm, but the New Red Menace may have gone a bit too far this time. We will just have to wait and see how many subscribers are going to continue taking the abuse from Netflix and how many are going to find somewhere else to wait weeks for new releases, rent scratched DVDs, and have their ISPs and computers blamed for streaming video problems.
7/23/2011
Notify Your Credit Card Company About Netflix Membership Cancellation
Even if you take great care to properly close your Netflix account, it is possible that Netflix may still try to hit you with additional charges after your subscription has ended. Netflix could make claims of an improperly closed account, missing DVDs, missed deadlines, etc. If this happens, you have the right to dispute the bogus charges with your credit card company, and, if you are a customer in good standing, there is a decent chance your credit card company could side with you.
You do not have to wait for a problem to occur to take action, however. If you are concerned that Netflix could hit you with bogus credit card charges after you close your Netflix account, you might consider being proactive and contacting your credit card company before you close your Netflix account. You can notify your credit card company of the date you plan to close your Netflix account and the date after which Netflix should not be billing your card. You could still get hit with additional charges, but you may then have a stronger case if you need to dispute any suspicious charges from Netflix.
You do not have to wait for a problem to occur to take action, however. If you are concerned that Netflix could hit you with bogus credit card charges after you close your Netflix account, you might consider being proactive and contacting your credit card company before you close your Netflix account. You can notify your credit card company of the date you plan to close your Netflix account and the date after which Netflix should not be billing your card. You could still get hit with additional charges, but you may then have a stronger case if you need to dispute any suspicious charges from Netflix.
7/22/2011
Charges for "Missing" DVDs After Canceling Netflix
Too many people are making a costly mistake when canceling their Netflix subscriptions, and since there may be many Netflix membership cancellations between now and September, this is a very important special reminder to help save you from a nasty surprise after canceling your Netflix membership. If you read only one thing on this site between now and September, read this:
Absolutely, clear your Netflix queue of all DVDs and make sure all of your Netflix DVD returns have been acknowledged by Netflix before closing your Netflix account. If you do not take this precaution, Netflix may charge you for DVDs they claim are "missing."
Numerous former Netflix members have reported that Netflix charged their credit cards for missing DVDs after they properly closed their accounts and returned all of Netflix's DVDs. Unfortunately, Netflix is always in control of any evidence when this happens, so there is no way to prove the fraud.
Once you close that Netflix account, barring signature confirmation, you have no way to prove Netflix received all of the DVDs you returned to them. Netflix may claim you did not return your DVDs, and they may stick you with a charge of $20, $40, $60, etc. on your credit card. If Netflix does this to you, you may have little recourse. You will have to dispute the charge with your credit card company. If your credit card company does not side with you, you will be responsible for the additional charges from Netflix.
So, clear your Netflix queue, and return all of the DVDs well before your cancellation date. If all DVDs have not cleared your account, report them as missing before closing your account. If you really want to be safe, you might consider sending your DVDs back with signature confirmation. Yes, signature confirmation is a pain, but so is paying for DVDs you already returned. If you can produce proof of delivery, you will have a much better case if you need to dispute Netflix's charges with your credit card company.
Absolutely, clear your Netflix queue of all DVDs and make sure all of your Netflix DVD returns have been acknowledged by Netflix before closing your Netflix account. If you do not take this precaution, Netflix may charge you for DVDs they claim are "missing."
Numerous former Netflix members have reported that Netflix charged their credit cards for missing DVDs after they properly closed their accounts and returned all of Netflix's DVDs. Unfortunately, Netflix is always in control of any evidence when this happens, so there is no way to prove the fraud.
Once you close that Netflix account, barring signature confirmation, you have no way to prove Netflix received all of the DVDs you returned to them. Netflix may claim you did not return your DVDs, and they may stick you with a charge of $20, $40, $60, etc. on your credit card. If Netflix does this to you, you may have little recourse. You will have to dispute the charge with your credit card company. If your credit card company does not side with you, you will be responsible for the additional charges from Netflix.
So, clear your Netflix queue, and return all of the DVDs well before your cancellation date. If all DVDs have not cleared your account, report them as missing before closing your account. If you really want to be safe, you might consider sending your DVDs back with signature confirmation. Yes, signature confirmation is a pain, but so is paying for DVDs you already returned. If you can produce proof of delivery, you will have a much better case if you need to dispute Netflix's charges with your credit card company.
7/13/2011
Netflix Price Increase Marks a Good Time to Plan Your Exit
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| Exit Netflix Sign |
For some subscribers, this will amount to a 60% price increase. An increase of around $6.00 per month may sound manageable, but when considering that amounts to $72.00 per year, the cost becomes a significant issue. Also, consider that Netflix is a luxury expense. In how many areas of your life are you willing to accept a price increase of 60% on a luxury expense with no appreciable increase in service? For example, if you frequented a restaurant and it suddenly raised its prices 60% without improving the food or increasing the portions, how often would you return to that restaurant?
It appears Netflix is aggressively trying to discourage subscribers from renting physical DVDs. Netflix must really hate paying the costs of a DVD-by-mail business. Even though Netflix subscribers have become largely accustomed to being abused by Netflix, a price increase of 60% with no substantial increase in subscriber benefits seems a bit extreme and could be seen as almost a deliberate hostility toward DVD renters.
Assuming you've suffered some sort of dreadful head injury and you now wish to begin a new Netflix membership, you have no choice but to accept the price increases right away. If you are an existing Netflix subscriber, you have until around September to change your viewing habits or get hammered by the big increase.
You may have noticed that you can't spell "Netflix" without E, X, I, and T. You may have also recognized it may be time to start looking for the way out. Fortunately, subscribers have a few weeks to plan their exits from Netflix. If you are Netflix subscriber, and you wish to exit Netflix, you are advised to plan ahead. The biggest pitfalls to avoid when canceling your Netflix subscription are getting charged for extra months and getting charged for DVDs Netflix may claim were never returned or returned after the due date. To minimize these possibilities, consult the cancellation procedure outlined at "Canceling Your Netflix Subscription."
If you put your Exit Netflix plan into place and properly end your Netflix subscription during the next several weeks, you can avoid the price hike and apply the money in your entertainment budget toward better values.
If you would like to help your fellow Netflix Underground readers by recommending some alternatives to Netflix and providing some other Exit Netflix tips, please click on comments below and post your suggestions.
7/06/2011
El Netflix
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| No Stinking Badges Sign |
Having suckered much of the United States and Canada, the New Red Menace is now setting its sights south of the border. Later in 2011, Netflix plans to make its streaming service available to forty-three countries in Latin America and the Caribbean.
Oh, these poor people have no idea what is coming their way. For you polyglots out there, how do they say "throttling" in Spanish, Portuguese, etc.?
4/25/2011
Netflix Turns a Deaf Ear to the Hearing Impaired
Closed Captioning Symbol
There is a frustrated group of consumers who are not getting proper respect or attention from Netflix: the deaf and hearing impaired. Many Netflix customers with hearing impairments have been urging Netflix to improve resources for finding and viewing closed captioned content.
Apparently, Netflix has not been addressing these concerns with much energy or interest. Deaf people are complaining that Netflix does far too little to allow the deaf to find closed captioned DVDs on Netflix's Web site. Even worse, closed captioning on Netflix's streaming content is inadequate. Surprisingly, some content that has subtitles on DVD does not have the subtitles on streaming. In short, deaf Netflix customers are getting the shaft.
Here's the worst part. Netflix's pricing structure seems to be a bit more friendly toward streaming viewers while discouraging those who wish to rely on DVD-by-mail. Deaf people rely more heavily on DVD content, because DVD content is more likely to include subtitles. Based on complaints from deaf people, Netflix's streaming service is just not an attractive option for those who have hearing impairments and must read dialog.
Let's forget about the social issues and corporate decency here for a second. Maybe it just makes good business sense to serve the needs of groups with special needs like the deaf. Imagine if a company were to accommodate a demographic like the deaf. This could create a very loyal customer set that could provide many years of steady revenue.
Really, how hard could it be? A lot of content already has subtitles. Beyond that, automatic closed captioning technology keeps getting better. Why is this major technology leader, Netflix, not able to better incorporate these services into its streaming content? Maybe Netflix should look at the long-term marketing potential of making their services more accessible and accommodating toward the deaf.
3/04/2011
1/05/2011
Netflix Facing Class Action Lawsuit for Alleged Antitrust Violation with Walmart
No surprise, but Netflix is facing another class action lawsuit. This lawsuit is not due to anything you might have assumed, however. Rather than Netflix being sued over the company's wide array of suspicious business practices, Netflix is being sued for something the company allegedly did in 2005.
If you will think back to that time, Walmart was in the DVD-by-mail business. Walmart shuttered its video rental business and effectively surrendered its subscribers to Netflix. Netflix.com promoted Walmart for DVD sales. Walmart.com promoted Netflix for DVD rentals. It seemed like a wonderful marriage.
The plaintiffs are alleging that Netflix's CEO, Reed Hastings, met with the CEO of Walmart during that period, John Fleming, and conspired to strategically divide the home video market. According to the alleged agreement, Netflix would not sell DVDs (presumably new DVDs) if Walmart would agree to stop renting DVDs. That way, Walmart could secure a larger share of video sales and Netflix could secure a larger share of video rentals. Most importantly, the companies would not have to compete against each other and drive down each other's profits in price wars.
From a business point-of-view, this sort of arrangement makes perfect sense. Why fight your competitor in price wars over two different markets, when you can simply call a truce with your competitor that will allow each of you to have great control over an individual market? After all, as a business leader, which would you rather have: two highly competitive markets with low profit margins or one monopolized market with a high profit margin? If you do not have to compete as much, you can charge higher prices. Higher prices may hurt consumers, but higher prices normally translate to higher profits when proper competition does not exist in any given market.
The most important thing to consider about this alleged conspiracy is that it is most likely illegal under antitrust laws. These antitrust laws are in place to protect you, the consumer, from price fixing, collusion, and other similar predatory business practices. Walmart certainly did not want to be in a big trial over this. Walmart has already settled for an amount that may be $29 to $40 million. At some point, those included in the class action lawsuit will probably receive checks or Walmart gift cards as part of the settlement.
It is unclear what Netflix is going to do about this. Netflix is potentially just as guilty as Walmart in this alleged conspiracy. Netflix, however, may have much more at stake in this controversy. DVD sales makes up only a small fraction of Walmart's profits. If Walmart lost a lawsuit over inflated DVD sale prices, it would mean a hit against just one of its many businesses.
With Netflix, however, this is a different story. Netflix largely exists on video rentals. Videos are not just one business for Netflix, videos are Netflix's business. If the plaintiffs can prove Netflix has been able to charge inflated prices ever since the alleged Walmart agreement in 2005, the penalties could be tremendous. U.S. District Judge Phyllis Hamilton in Oakland, CA has stated, "As a result, millions of Netflix subscribers allegedly paid supracompetitive prices."
Think about the millions and millions of subscribers who have paid monthly subscription fees to Netflix since 2005. If Judge Hamilton or some other judge were to determine those subscription fees were inflated by just 10% as a result of an illegal pact with Walmart, the amounts could be staggering. The penalties could be crippling.
The federal trial is currently set for January 2012. Certainly, Netflix lawyers and managers are carefully debating their options. Netflix must tread carefully on this issue. Given this lawsuit could potentially involve every Netflix subscriber since 2005, even the slightest misstep could lead to a nasty stumble for Netflix.
If you will think back to that time, Walmart was in the DVD-by-mail business. Walmart shuttered its video rental business and effectively surrendered its subscribers to Netflix. Netflix.com promoted Walmart for DVD sales. Walmart.com promoted Netflix for DVD rentals. It seemed like a wonderful marriage.
The plaintiffs are alleging that Netflix's CEO, Reed Hastings, met with the CEO of Walmart during that period, John Fleming, and conspired to strategically divide the home video market. According to the alleged agreement, Netflix would not sell DVDs (presumably new DVDs) if Walmart would agree to stop renting DVDs. That way, Walmart could secure a larger share of video sales and Netflix could secure a larger share of video rentals. Most importantly, the companies would not have to compete against each other and drive down each other's profits in price wars.
From a business point-of-view, this sort of arrangement makes perfect sense. Why fight your competitor in price wars over two different markets, when you can simply call a truce with your competitor that will allow each of you to have great control over an individual market? After all, as a business leader, which would you rather have: two highly competitive markets with low profit margins or one monopolized market with a high profit margin? If you do not have to compete as much, you can charge higher prices. Higher prices may hurt consumers, but higher prices normally translate to higher profits when proper competition does not exist in any given market.
The most important thing to consider about this alleged conspiracy is that it is most likely illegal under antitrust laws. These antitrust laws are in place to protect you, the consumer, from price fixing, collusion, and other similar predatory business practices. Walmart certainly did not want to be in a big trial over this. Walmart has already settled for an amount that may be $29 to $40 million. At some point, those included in the class action lawsuit will probably receive checks or Walmart gift cards as part of the settlement.
It is unclear what Netflix is going to do about this. Netflix is potentially just as guilty as Walmart in this alleged conspiracy. Netflix, however, may have much more at stake in this controversy. DVD sales makes up only a small fraction of Walmart's profits. If Walmart lost a lawsuit over inflated DVD sale prices, it would mean a hit against just one of its many businesses.
With Netflix, however, this is a different story. Netflix largely exists on video rentals. Videos are not just one business for Netflix, videos are Netflix's business. If the plaintiffs can prove Netflix has been able to charge inflated prices ever since the alleged Walmart agreement in 2005, the penalties could be tremendous. U.S. District Judge Phyllis Hamilton in Oakland, CA has stated, "As a result, millions of Netflix subscribers allegedly paid supracompetitive prices."
Think about the millions and millions of subscribers who have paid monthly subscription fees to Netflix since 2005. If Judge Hamilton or some other judge were to determine those subscription fees were inflated by just 10% as a result of an illegal pact with Walmart, the amounts could be staggering. The penalties could be crippling.
The federal trial is currently set for January 2012. Certainly, Netflix lawyers and managers are carefully debating their options. Netflix must tread carefully on this issue. Given this lawsuit could potentially involve every Netflix subscriber since 2005, even the slightest misstep could lead to a nasty stumble for Netflix.
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