Weird Letter from Netflix

[Izawwlgood]

Any thoughts on that bizarre as hell e-mail that was sent out, and why Netflix is so dedicated to driving it's lucrative, industry changing business into the ground?

Here it is if you don't subscribe:

Spoiler:

Dear Zach,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

TL;DR?
"Hi, I'm the CEO of Netflix, and you, good sir who I don't know but will address by your first name and act like we're chums, are probably miffed that we are changing our pricing plans and services! Rest assured, it is because we're INNOVATORS, and also, are separating our business into two divisions, one named Qwikster, which will deliver DVDs, and another named Netflix, which will stream movies to your TV! How innovative!"

[Thesh]

Yeah, I still don't see how what they are doing makes sense. Qwikster is a horrible name, and Netflix is just so simple and good. Also, having DVD and streaming in the same website allows me to scroll through my DVD queue and see if there is anything I can stream, or when browsing for DVDs to add to my queue, I can say "Hey, I can just add this to my instant queue instead of waiting for it on DVD." Now, it doesn't sound like I'll be able to do any of that. Having two websites just degrades the customer experience, and a company like this thrives on customer experience.

I love Netflix as it is now, but I'm not sure I'm going to want to stay with them after this.

[Carnildo]

Any thoughts on that bizarre as hell e-mail that was sent out, and why Netflix is so dedicated to driving it's lucrative, industry changing business into the ground?

It's fairly obvious that the next revolution in movie rental is going to be going from movies-by-mail to streaming movies, and Netflix doesn't want somebody to do to them what they did to Blockbuster. Splitting the company in two is simply a matter of hedging their bets: if one of the two business models (movies by mail or streaming movies) fails, it won't drag the other one down.

[Thesh]

Well, their streaming content is too limited for me to buy it on its own (and with starz backing out, it's going to become more limited), and I'm not going for a DVD-by-mail service that doesn't provide streaming. I'm guessing many other people feel the same as well.

What I see here is them setting up both of the companies to fail.

[AvatarIII]

here's hoping that lovefilm doesn't follow suit, i've only just started using their streaming service after upgrading my router to something that can actually cope with the levels of bandwidth required for it, and i'd hate to have to pay more, but then again, not all of lovefilm's streaming service is free, most movies are pay-per-view, I was already surprised to hear netflix do not offer blurays within the same price package as DVDs, and that they are only just about to start offering games.

this is the lovefilm packages in case you are wondering
https://www.lovefilm.com/signup/1?intcid=lfctasuhppp

[PatrickRsGhost]

I think it's a form letter, and it's set up to sound somewhat personable, by addressing users by their first names vs. a more formal, businesslike manner (Dear Mr./Ms./Mrs. Last Name). That's the thing that bugs me about e-mails from businesses online, like Netflix, Amazon, or other site. They want to be personal.

I don't understand why they have to use a different name for DVD service, either. Sounds to me like they're trying to phase customers out of renting DVDs, and streaming instead. If they're not integrating the two sites, which is a HUGE mistake, then I truly believe they're trying to phase customers out of physical DVD rentals.

That leads to a series of questions. What if you can't stream? What if you live in an area where high-speed access is unavailable, like in a rural part of the state or country? What if you can't afford the technology to stream movies to your TV, or your computer doesn't have the hardware capable of watching movies without a hitch? What if you just prefer having a physical copy of the movie, vs. a digital copy? You can have my DVD collection when you pry it from my cold, dead hands.

Same would go for music. True, I've downloaded a ton of mp3s, but if buying the actual CD is cheaper in the long run vs. buying the mp3 album, give me the 90s technology of the CD any ol' day.

This is something I predicted many years ago, in a Blockbuster of all places. Netflix was still in its infancy, with online DVD rentals. I predicted we would be able to download and watch whole movies not only on our computers, but on our TVs as well. I predicted the coming of Roku and Slingbox. I knew that hard copies of movies would be a thing of the past.

[Aaeriele]

Relevant: http://abovethecrowd.com/2011/09/18/und ... d-pricing/

Spoiler:

Understanding Why Netflix Changed Pricing
Posted on September 18, 2011. Filed under: Internet, online video, Uncategorized, video, Web/Tech |

Many journalists have offered their opinion on Netflix’s recent changes, its stock price decline, and their even more recent branding changes (Qwikster). Yet in each article, it appears as if the journalist all agree that the price move (creating separate prices for streaming and DVDs) was a bad strategic move. As an example, Techcrunch notes:

“Raising prices for those of us who opt for both streaming and DVDs would have been fine if Netflix had a deeper streaming catalog. But the gap is still too big, and the price hike seemed premature. Your customers are extremely loyal. Don’t piss them off.”

The problem with this perspective is, in my opinion, the price move was not a “decision,” so much as a “reality” presented to Netflix from the content owners in Hollywood.

Hollywood is a unique place, and understanding “business” in Silicon Valley leaves you ill-prepared to understand what makes Hollywood tick (for more on this see: When It Comes To Television Content, Affiliate Fees Make The World Go ‘Round). Very few people understand the key underpinning of the Netflix “original” business model — a 1908 Supreme Court Ruling known as “first sale doctrine.” From Wikipedia:

“The doctrine allows the purchaser to transfer (i.e., sell, lend or give away) a particular lawfully made copy of the copyrighted work without permission once it has been obtained.”

Because of the first-sale doctrine, any DVD reseller, including Netflix, can basically buy a DVD at WalMart, and turn around and rent it to someone else the very same day. The content owners have absolutely no control over whether the copy can be resold or rented. Period. As such, Netflix has the ability to rent (via DVD) any movie which has ever been sold on DVD, and its costs are relatively fixed as a result of the retail price of the actual DVD. In some ways, it is a perfect storm.

Fast forward to digital streaming and all bets are off. More specifically, the first-sale doctrine does not apply. That’s right. For DVDs, Netflix’s rights are unlimited and its costs are constrained. For digital, its rights are constrained and its costs are unlimited. In the absence of the first-sale doctrine, Netflix must negotiate each and every title, and the price of the right to stream that digital title is up to the whim of the content owner. For many titiles, you cannot even obtain digital rights, because they can’t find all the people the need to release the rights to do so.

So here is what I think happened with Netflix’s recent price change (for the record, I have no inside data here, this is just an educated guess). Netflix has for the past several years been negotiating with Hollywood for the digital rights to stream movies and TV series as a single price subscription to users. Their first few deals were simply $X million dollars for one year of rights to stream this particular library of films. As the years passed, the deals became more elaborate, and the studios began to ask for a % of the revenues. This likely started with a “percentage-rake” type discussion, but then evolved into a simple $/user discussion (just like the cable business). Hollywood wanted a price/month/user.

This is the point where Netflix tried to argue that you should only count users that actually connect digitally and actually watch a film. While they originally offered digital streaming bundled with DVD rental, many of the rural customers likely never actually “connect” to the digital product. This argument may have worked for a while, but eventually Hollywood said, “No way. Here is how it is going to work. You will pay us a $/user/month for anyone that has the ‘right’ to connect to our content – regardless of whether they view it or not.” This was the term that changed Netflix pricing.

With this new term, Netflix could not afford to pay for digital content for someone who wasn’t watching it. This forced the separation, so that the digital business model would exist on it’s own free and clear. Could Netflix have simply paid the digital fee for all its customers (those that watched and not)? One has to believe they modeled this scenario, and it looked worse financially (implied severe gross margin erosion) than the model they chose. It is what it is.

Netflix is an amazing company, and Reed Hastings is one of the best CEO’s Silicon Valley has ever seen. That said, at age fourteen, the digital world is forcing Netflix to execute a pivot. And the world they are entering is radically different from the world they are leaving. There is no longer a first-sale doctrine to keep things neat and tidy.

[Microscopic cog]

All I know about this comes from The Oatmeal's recent comic about it, but maybe it's relevant so I figured I should post it. Besides, I like The Oatmeal.

Edit: Nor is it relevant to me because I don't use Netflix.

Spoiler:

[Izawwlgood]

Yeah, the Oatmeal sums it up best.
Few things:

I think it's a form letter

If you aren't being sarcastic, I simply cannot roll my eyes hard enough at you. Because you know, I'm pretty confident the CEO wrote that letter to me specifically (I am being sarcastic).

Well, their streaming content is too limited for me to buy it on its own (and with starz backing out, it's going to become more limited), and I'm not going for a DVD-by-mail service that doesn't provide streaming. I'm guessing many other people feel the same as well.

I feel exactly this way. I was completely fine with their DVD and streaming selections not being 'perfect', because they supplemented one another. Now I have to pay more, and settle for two sub-optimal products.

It's fairly obvious that the next revolution in movie rental is going to be going from movies-by-mail to streaming movies, and Netflix doesn't want somebody to do to them what they did to Blockbuster. Splitting the company in two is simply a matter of hedging their bets: if one of the two business models (movies by mail or streaming movies) fails, it won't drag the other one down.

Personally, I'd be surprised to see either service really succeed after the way this was handled.

[SecondTalon]

Yeah, the Oatmeal sums it up best.

Only if you don't understand just how hard the Studios are fucking Netflix, sure.

Because they're fucking Netflix.

Hard.

Splitting the services into two separate companies might be the only way they can keep streaming, period.

[AvatarIII]

I'm really not entirely sure why they couldn't have just offered the 2 services in packages all under the netflix banner
like you can buy a netflix package that is either just rentals (for the sake of argument lets say $8), or just streaming (again let's say $8) or both (say $15, cheaper than both separately, as in incentive)
it would be everything that's happening, with the benefit of netflix not losing customers, netflix customers who only want rentals not having to go and cancel one package and buy another, it would all be under one website, and everyone would be happy, right?

[Izawwlgood]

Only if you don't understand just how hard the Studios are fucking Netflix, sure.

Then they should have hiked their prices accordingly, perhaps even with an explanation for why the prices needed to be raised. Letting their service coverage lapse, charging more, AND splitting their services just seems like bad business.

[pseudoidiot]

What irritates me about the whole deal is until a few months ago I was using Blockbuster Online and I was really happy with it. Two Blu-Ray/DVDs at a time (no upcharge for Blu-Rays), instead of just mailing discs back I can take them back to a Blockbuster location and trade it out for a rental from the store (any number of times a month), one free movie/game rental coupon a month, and I could put games in the Blockbuster Online queue.

Pretty fantastic deal. But my wife & I weren't using it as much as we used to. We just kept holding on to it because we'd had it for so long that most of the subscription features we had weren't even available anymore. Anyhow, we switched to Netflix, oh 5 or 6 months ago, to save a little money. I've used the Streaming a bit for old shows and the occasional movie and we watch the mailed movies somewhat regularly.

Then the prices go up to more than we were paying Blockbuster. I'd rather just go back to that but we won't have the same awesome features we had before.

Cancelled the mail-in subscription from Netflix. I'll keep holding onto the streaming for now -- there's still some content I'm interested in, but that may not last much longer.

Yay for Redbox I suppose.

[Obby]

Yeah, the Oatmeal sums it up best.

Only if you don't understand just how hard the Studios are fucking Netflix, sure.

Because they're fucking Netflix.

Hard.

Splitting the services into two separate companies might be the only way they can keep streaming, period.

While that certainly sucks, it's not really my job to support a company that used to be good but now sucks (for whatever reason) any more than it is Netflix's job to care about how I'm going to make my next mortgage payment. I understand that Netflix really doesn't have much of a choice in the matter since they're getting dicked around so horribly, but the end result to me is a much lower quality service and a very poor user experience. I'm not going to keep subscribing to Netflix simply because they used to be awesome.

[SecondTalon]

I'm really not entirely sure why they couldn't have just offered the 2 services in packages all under the netflix banner

Then they should have hiked their prices accordingly, perhaps even with an explanation for why the prices needed to be raised. Letting their service coverage lapse, charging more, AND splitting their services just seems like bad business.

Here is my assumption for what's going on. It's only my assumption, and I've got no evidence beyond what they're doing to back it up.

Netflix : Hey, Movie Studios! We're going to keep renting and streaming your shit because it's awesome! Let's renew those contracts!
Studios : Alright, if you're renting DVDs which you can legally do and we can't really stop you, Streaming is now going to cost sixteen asstons of cash.
Netflix : ... Holy shit, we'd have to charge our users like, 50 goddamn dollars a month for streaming alone.
Studios : Yeah, but we're stupid and assuming that your streaming is keeping people out of theaters, rather than our product just being especially shitty.
Netflix : Boy, you aren't kidding when you say you're stupid. So, wait.. what if we.. like, I dunno.. just did streaming and didn't do DVD renting or something?
Studios : Oh, I guess we can let you stream for just two asstons of cash.
Netflix : So.. is this blackmail?
Studios : Not legally.
Netflix : Shit. Alright, how's this - follow with me here... we keep Netflix alive for streaming and we pay you two asstons of cash...
Studios : We like cash.
Netflix : Right. So we do that, and then we have a second company that takes over the DVD rentals.
Studios : So, it's a shell company, like we do with goddamn everything we touch?
Netflix : Pretty much, yeah.
Studios : ... Four asstons, and we're cool with it.
Netflix : Better than nothing, I gue-
Starz : We're out!
Netflix : .... fuck.

[JBJ]

And to complement what ST said, Starz and other content owners who licensed to Netflix are also probably working behind the scenes to establish their own streaming service, a la HBO-GO and Max-GO. They want to get a cut of the action directly instead of farming it out.

[SecondTalon]

See Also : Standards.

I mean, I'm not saying Netflix doesn't need competition. I'm saying we have Hulu, Blockbuster, Redbox and whatever the blue one is. We don't need HBO-GO or StarzOnline.

I mean, the argument has to be "Why are we letting Netflix pay us a pittance for our content when we could be selling it directly? Think of the profits!" without realizing just how much work goes in to not having a not-shitty streaming service.

[AvatarIII]

that sounds kind of plausible

i don't know why everyone moaned about the price hike though, i'm paying £15pcm for Lovefilm (plus pay per view on most streaming, although there is a pretty sizable, constantly changing, selection of free stuff to stream), with streaming and rentals (including game rentals and bluray, 2 simultaneous rentals, unlimited rentals per month determined by how fast i can send them back), and always have done, not only is that more than netflix's old price, but more than their post-hike price, and i'm not complaining, I'm totally happy with their service for that price, but i guess i haven't known it any better, and cost of living is higher in the UK.

[Yakk]

So, what about the end-run around it?

1: You rent DVDs to people. Physical DVDs.
2: You offer DVD hosting services to people. You host their DVDs in your machine.
3: You provide a web-connection to watch their DVDs for them, wherever they want.

For this to work, individuals just need the right to stream the content they own over the 'net to themselves. Then they need to be able to let someone else do it for them. And poof, a first-sale doctrine for streaming.

I guess this is why Hollywood is working to hard to make sure you no longer own a copy of the media in question.

[AvatarIII]

So, what about the end-run around it?

1: You rent DVDs to people. Physical DVDs.
2: You offer DVD hosting services to people. You host their DVDs in your machine.
3: You provide a web-connection to watch their DVDs for them, wherever they want.

For this to work, individuals just need the right to stream the content they own over the 'net to themselves. Then they need to be able to let someone else do it for them. And poof, a first-sale doctrine for streaming.

I guess this is why Hollywood is working to hard to make sure you no longer own a copy of the media in question.

this sounds almost like the idea of digital copies, but replace "digital copy" with "right to stream"
like if every DVD had a code with which you could enter it into netflix and from then on you would be free to stream that movie as much as you want, from wherever you want.

[Thesh]

Honestly, I'm probably just going to get a parrot and an eye patch. Problem solved.

[Yakk]

No, the end-run would be renting the movie from Netflix, and they keep it at their facility and just stream the content to you.

You end up renting it "by the minute", and Netflix becomes limited by the number of copies of a DVD they have to the number of people currently streaming the content.

[Ptolom]

No, the end-run would be renting the movie from Netflix, and they keep it at their facility and just stream the content to you.

You end up renting it "by the minute", and Netflix becomes limited by the number of copies of a DVD they have to the number of people currently streaming the content.

No, no, no, the end is where Netflix has to buy a ticket for each of their customers who wants to stream something. They give the tickets to a horde of robot drones which then trundle into the cinema and beam data back to the users.

[Carnildo]

So, what about the end-run around it?

1: You rent DVDs to people. Physical DVDs.
2: You offer DVD hosting services to people. You host their DVDs in your machine.
3: You provide a web-connection to watch their DVDs for them, wherever they want.

There's a company out there that's trying it. I believe it's currently tied up in the courts.

[Vaniver]

I'm just wishing I sold back in July.

[Steax]

I mean, the argument has to be "Why are we letting Netflix pay us a pittance for our content when we could be selling it directly? Think of the profits!" without realizing just how much work goes in to not having a not-shitty streaming service.

We've all seen the cycle.

1. a daring entrepreneur makes a profit doing something 'trivial'
2. company spots it and thinks "well we're a lot better, how hard can it be?"
3. company uses their power to stop said person's creation
4. company uses their almighty abilities to make their own system
5. system fails hard
6. company blames failures on anyone but themselves

[Menacing Spike]

Speaking of weird letters...

Dear [redacted],
You've been a valuable member of our community for a long time, so we wanted to tell you in advance about some upcoming changes to StumbleUpon that may affect you.
Our primary goal at StumbleUpon is to help you discover great things. Our focus is on delivering you faster, better and more personalized recommendations, so that each time you click the "Stumble!" button you see more amazing content from every corner of the web!
In order to focus on improving the discovery experience for you, and after careful consideration, we have decided to remove Groups, discontinue the ability to select Themes, and simplify Blogging capabilities. We know some of you have enjoyed having these features, but we believe that these changes will allow us to better focus on making stumbling amazing for you.
Here's how these changes will take place:
Groups: Groups will be visible until October 24th, then will be removed permanently from the site. You can manually copy anything you'd like to keep, or will be able to export group information. We are working on an export option and will send more specific details in a few weeks.

Themes: Your current theme will remain up until October 24th. At that time all themes will be changed to a default theme that is a white background with black type. To see how your profile will look with the default theme, change your settings here.

Blog Posts/HTML Reviews: After October 24th we will no longer offer HTML/Blogging functionality, but you'll still be able to access blog posts and reviews created before October 24th which will exist in plain text format. We are working on an export option and will send more specific details about this in a few weeks.

Your feedback and questions continue to be important to us as we make changes. You should expect to hear from us again in about a month, when we'll have more details around export options. In the meantime, feel free to reach out to us directly if you have questions, or go to our Help Center to learn more about these changes.
Thank you for your understanding and support as we work on making StumbleUpon better for you!
- The StumbleUpon Team

TLDR: "Hello. We're removing everything. Bye."

Bwuh? I haven't used it in age, but what? That's as if MCDonalds went "hey, we stopped selling food to improve your experience."

[lanicita]

What I don't understand is why they didn't just say in the simplest terms that they couldn't afford to keep it at the same prices, rather than talking down to people as though they should be happy that the service is suddenly getting more expensive and less useable. All of the most beloved sites that I've been on (Hulu, Woot, Google) tell things like this to their users straight-up. It keeps things simple, keeps people from having to get immediately angry at the service rather than the networks that are overcharging them, and keeps people from getting their explanations elsewhere in places that might be biased against the service. All in all, the email was just a terrible business decision. And so is the name.

[Thesh]

Well, I got this email from Netflix today:

Dear [Insert First Name Here],

It is clear that for many of our members two websites would make things more
difficult, so we are going to keep Netflix as one place to go for streaming and
DVDs.

This means no change: one website, one account, one password…in other words, no
Qwikster.

While the July price change was necessary, we are now done with price changes.

We're constantly improving our streaming selection. We've recently added hundreds of
movies from Paramount, Sony, Universal, Fox, Warner Bros., Lionsgate, MGM and
Miramax. Plus, in the last couple of weeks alone, we've added over 3,500 TV episodes
from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery
Channel, TLC, SyFy, A&E, History, and PBS.

We value you as a member, and we are committed to making Netflix the best place to
get your movies & TV shows.

Respectfully,

The Netflix Team

[SurgicalSteel]

I hope they still do go with games though.

[Izawwlgood]

I was searching for a movie to watch last night and realized that I'm actually really disappointed with their movie selection. I'd say 90% of what they have is C-list films like Transmorphers and Weekend Summer Camp Bikini Slumber Party 7. Ah well.

[MasterOfAll]

Transmorphers and Weekend Summer Camp Bikini Slumber Party 7 was good, but you probably didn't get a lot of the jokes if you hadn't seen Transmorphers and Weekend Summer Camp Bikini Slumber Party 6.

[SecondTalon]

Yeah, but let's be honest - they peaked with Transmorphers and Weekend Summer Camp Bikini Slumber Party 3. The reboot wasn't bad, though.

[Decker]

Yeah, but let's be honest - they peaked with Transmorphers and Weekend Summer Camp Bikini Slumber Party 3. The reboot wasn't bad, though.

I have the original, non-remastered versions. ON TAPE. Heathens.

[Lostdreams]

It's all good until you realize you've had to adjust the tracking ten times already and its only 6 minutes into the movie.

[SecondTalon]

.......holy shit, I'd forgotten completely about adjusting tracking. Goddamn.

[Izawwlgood]

It's all good until you realize you've had to adjust the tracking ten times already and its only 6 minutes into the movie.

I had a couple movies that had weird static or sound skipping at certain points, that I watched so often it became what I expected. It's weird watching the digitally remastered versions where it's gone.

Same thing for a few of the albums I have on my iPod, burned from 10 years ago from a scratched CD.

[Endless Mike]

I was searching for a movie to watch last night and realized that I'm actually really disappointed with their movie selection. I'd say 90% of what they have is C-list films like Transmorphers and Weekend Summer Camp Bikini Slumber Party 7. Ah well.

On the other hand, the other 10% has a lot of really good stuff in it.

[Spambot5546]

If it weren't for Netflix and it's c-rated movies I never would have seen "Alien Vs Ninja", so quite frankly I'm a fan.