Qwikster, the Netflix Version of New Coke



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.

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.

Netflix Bets on Gullible Canadians and Ignorant Americans, Eh?

Netflix has apparently grown bored with tricking Americans. Now, the Red Menace is spreading to Canada. Netflix is off to a wonderful start up there too.

According to The Canadian Press, to drum up Canadian interest in Netflix, Netflix hired actors to pose as Netflix fans at a publicity event in Toronto on September 23, 2010. Some of the actors gave interviews to reporters. They did so, because Netflix instructed them to show enthusiasm, "particularly if asked by media to do any interviews."

Certainly, the press is upset about the trick. Netflix is apologizing for the hoax, stating that it was improper. According to Michael Liedtke of the Associated Press, Netflix spokesman, Steve Swasey, even tried to float the excuse that this was all an accident, arising from a fake documentary they needed to make to qualify for permitting. Now, that is a weak excuse. Netflix was probably just trying to fool the Canadian public, and things just backfired on them when the actors broke cover and exposed the scam.

What is wrong with the corporate culture at this shady company? Is Netflix honest in anything they do? Why does this company have to trick people to generate interest? If Netflix will do stuff like this to attract customers, what are they willing to do to existing customers?

Here is some honesty for you. Canadians are getting streaming Netflix service at a cheaper price than Americans. When Etan Vlessing from The Hollywood Reporter asked Reed Hastings, "Are you concerned that American Netflix subscribers will look north and ask for the same discount Canadians get at $7.99?"

The Netflix CEO and founder, Reed Hastings, responded, "How much has it been your experience that Americans follow what happens in the world? It's something we'll monitor, but Americans are somewhat self-absorbed."

So, Netflix does not want to give you American subscribers the same discount as they are giving to the same Canadians they just tried to fool with hired, fake Netflix fans. Reed Hastings thinks his company will get away with this pricing disparity because, apparently, Americans are too self-absorbed to know what is going on in other countries.

Hastings may very well be right about the ignorance of American Netflix subscribers, but do you want to do business with a company run by a man who has so little respect for you that he will publicly suggest you will pay higher prices because you do not know any better?

Reed Hastings' Total Movie Hounds

In a recent interview in FastCompany, Netflix CEO, Reed Hastings had something to say about heavy users.

In Hastings' view, if you want to watch fifteen DVDs a month, you are a “total movie hound.” He also suggests, in a narrow sense, it might be better to get rid of the movie hounds, because they cost Netflix money. He then seems to add as a positive that the movie hounds stay with Netflix a long time.

This view is contradictory. If a fifteen-DVD-per-month movie hound costs Netflix money, how could having a movie hound as a long-term customer be positive?

Is Netflix exaggerating their costs? Why does Netflix hang on to customers they dislike? If Netflix is really losing significant amounts of money on certain customers, why doesn’t Netflix rework their business model so they can have a less adversarial relationship with their customers?

Here is the original question and response for your reference.

FastCompany: Who's your ideal Netflix customer?

Reed Hastings: A customer who's traveling and forgets to rent a movie and watches no movies in a month [might be], because they haven’t cost us anything and they've paid us $9.99 or $17.99. On the other hand, a customer who's a very light user is not going to stay with us very long. It's not that there's something wrong, that they don't like you, it's just that they aren't watching any movies. That's the number one reason for customer churn. On the other extreme we've got users that are total movie hounds -- they're watching 15 movies a month -- and in some narrow sense, it would be better to get rid of them because you're losing money on them. But then, they stay with us a long time. So there is no best customer. We try to make the experience work for all of them and we try to balance that.

An interesting exercise is when we run short of titles. We try to always be in stock, but sometimes we're not. Say we've got 1,000 copies and there's 5,000 people who want a movie. So maybe somebody's already gotten a lot of value for their $20 or $18 or $9 because they've watched a lot of movies while other people have hardly watched that many movies this month, so they haven't gotten enough value yet. Our sense of fairness is that if we run short, it goes first to the people who haven't gotten the most value yet in order to create a fair and balanced experience for our customers.

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