Kevin Tracy

I’ve been a Netflix subscriber since 2006. In the past, I’ve told my family and friends that Netflix and Vonage were the only bills I enjoyed paying every month because the services were well worth the price tag. In 2010, I sadly made the decision to cut my Vonage line. Then, earlier this year, I cut my 2x DVD and streaming account on Netflix to just a basic streaming account. I had planned on picking up the DVDs with Blu-Ray plan again once I got my financial situation a little more stable. Now, it looks like I won’t get that chance.

According to Netflix CEO Reed Hastings, the company will split into two in a few weeks. Netflix will be the company that handles online streaming; while the new company, Qwikster, will be the company that does the traditional mail delivery of DVDs. Qwikster will also reportedly offer video game rentals, something I thought Netflix should have tried to do a while ago.

Due to the economic recession, Netflix has lowered its expectations and recently predicted they would lose 1 million of their 25 million customers. They suspect 80% of those ditching Netflix would be DVD-only customers. In other words, they expect the number of DVD-only customers to drop over 26%.

Industry analysts expect the decision to split Netflix into two companies is designed to insulate the streaming video portion of Netflix from the struggling DVD portion of their industry.

There’s just one problem.  Take a look at the above graphic again… look close.  Perhaps you see it.  The graphic isn’t exactly proportional.  Looking at the image alone, you would think that the majority of their business would come from streaming-only customers; but that’s not accurate.  In fact, there are only 9.8 million Streaming-only customers.  Over 2 million fewer customers than are using BOTH DVD and streaming.  In other words, almost 60% of Netflix customers get DVD’s through the mail.

Now here’s the problem.  While I did drop my DVD service, I had every intention of getting it back when I had a bit more money to spend on entertainment.  While Netflix streaming is nice, the selection of films isn’t the greatest.  It’s not as bad as the selection of Free Movies OnDemand from Comcast, but it isn’t much better for the average person who is only interested in watching popular and famous blockbuster films (I watch a lot of foreign and silent films, but I’m also weird).  In other words, you can’t stream Avatar, Titanic, Harry Potter, Speed Racer, The Godfather, or anything Star Wars.  Even Citizen Kane, the greatest film ever made, is unavailable to stream.  Nor can you stream popular TV shows of the present or past, such as House, MD or The Sopranos.

You can, however, stream A Boy and His Dog staring Don Johnson (and a talking dog).

The 60% of Netflix customers who receive DVDs have chosen to get DVDs because the online streaming selection, more often than not, fails to have the show or movie you want to watch.

However, what the 14.2 million customers who get DVDs understand is that virtually every film put on DVD can be at their fingertips in two short days… or sooner if that film or show happens to be on streaming.    For the 12 million (half) of their customers who get both streaming and DVDs, the service will be RUINED when Netflix splits.

Two queues.  Two sets of reviews.  Two lists.  Two bills. One headache.

Look at that graphic again.  The most loyal Netflix customers are those that get both services.  They are projected to remain at 12 million when the individual service customers drop.  It’s the COMBINATION of DVDs and Streaming that has made Netflix such a success… something represented in this Hacking Netflix poll, in which 78% of the 2,640 respondents believe the splitting of Netflix is bad and/or dangerous.  An additional 4.85% wonder if Netflix can make the difficult transition.  14.32% believed the idea was smart or interesting because the new company would also offer video games (something many of us have wanted for a while).

With WalMart, Amazon, Apple, Xfinity, Dish Network, Blockbuster, and Google all trying to break into a market that Netflix has dominated for years, I have serious concerns about this move.

So, too, do investors.  Netflix stock has plummeted in value since the announcement has been made.

The worst thing about this is that the decision appears either way too short sighted or way too far sighted.

Short sighted because the number of DVD accounts is going to go up in a year or two when the economy finally improves.

Far sighted because we’re still at least a decade away from a time when every film and TV show can be offered for online streaming… assuming the legal rights could ever be obtained for something like that.  Until that time, there will always be a demand for the DVD (or Blu-Ray) service.

Either way, Netflix customers and investors both strongly dislike the decision, and every one of us has the right to feel betrayed by a service we have loyally subscribed to for years.