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SALT LAKE CITY -- This week, Netflix announced a radical change that took many subscribers and industry pundits by surprise. In an email message, CEO Reed Hastings laid out the roadmap for the future of Netflix, including a split of the company into two separate groups. The DVD business that catapulted Netflix to meteoric fame will be renamed Qwikster and put under the reins of Andy Rendich as CEO.
In his email to customers, Hastings says, "We realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently." Hastings will remain CEO of Netflix and will still manage streaming content delivery.
With DVDs no longer located at Netflix.com, users will need to visit Qwikster.com to add DVD movies to their queue and update their mailing addresses. While the new envelopes will retain the same overall design and red color, they will prominently bear the Qwikster name.
The motivations and implications to customers are still unclear. A leading hypothesis is that Netflix is hoping to sell its DVD division outright and was searching for a name as dissimilar to the existing Netflix name as possible. In a letter to shareholders sent on Sept. 15, Netflix makes the prediction that a mere 2.2 million customers of its 24 million customers will have a DVD-only plan, with an additional 12 million subscribing to both DVD and streaming services.
With the recent split of the DVD and streaming services, the groundwork has been laid for a transition to two separate Web locations. Given that users can now choose which services they want in a la carte fashion, it becomes simple for customers to explore Netflix alternatives.
In the DVD world, the major competitor to Netflix is Redbox. The ubiquitous red kiosks are conveniently located outside establishments where impulse buys frequently occur, such as supermarkets. It is easy to leave with a cart full of groceries, topped off by a movie of your choice.
Servicing DVDs, Blu-Rays and video games for low daily fees, Redbox is an easy alternative that requires no subscription or ongoing monthly fees. One downside is that the selection is often limited to new releases, and kiosks can sell out of popular titles quickly. Some new releases are withheld from Redbox for 28 days due to an arrangement with studios to help bolster lagging DVD sales.
Blockbuster is also a direct competitor to the DVD services offered by Netflix. While its once omnipresent brick-and-mortar establishments are becoming few and far between, its DVD mail service is gaining ground. While the base monthly fee it charges is slightly higher than the fees charged by Netflix, the subscription includes Blu-Ray titles and video games at no additional cost. It is not bound to the same 28-day release delay that Redbox and Netflix have agreed to. This makes it easier to grab the latest release a day or two after it has been made available. Blockbuster also offers a kiosk service similar to Redbox called Blockbuster Express.
Blockbuster currently offers a pay-per-view streaming service that allows movies to be streamed either for single viewing or permanent ownership. It is rumored to be launching a monthly subscription service in the near future.
Amazon.com is another competitor in the streaming market. Amazon offers streaming content that can be purchased for one-time viewing or for permanent digital ownership. In addition, it offers a subscription service. For a yearly fee of $79, unlimited access is granted to streaming content.
It should be noted, however, that only part of Amazon's library is available for unlimited viewing under its subscription plan. In addition, the $79 membership under the Amazon Prime program entitles the account holder and other household members to free two-day shipping on designated Amazon purchases.
While Blockbuster and Netflix are the two primary companies dominating the DVD-by-mail industry, there are plenty of smaller operations that exist trying to operate under similar models. For the moment, however, the reliability of other services is uncertain.
The streaming market is not so clear. Given the price increases and loss of the Starz contract, Netflix, heralded as leader of the streaming market at one time, is no longer guaranteed a position at the top of the leaderboard. There are many streaming competitors to choose from that were not mentioned, including Apple iTunes, Walmart's Vudu, Hulu, Best Buy's CinemaNow, and a host of other emerging services. In addition, cable and satellite companies are offering a wider range of free and premium on-demand streaming content through existing set-top boxes.
While the future remains to be seen, the choices are expanding as digital content becomes king. With the dramatic decline in DVD sales, it appears as if the DVD player will enjoy a far shorter lifespan that its VCR predecessor. Pricing models will be refined and studios will become less reluctant to loosen the licensing restrictions preventing vast volumes of content from being offered, allowing the streaming video market to flourish.
While some express concern at the current dearth of streaming material available, the adoption rate of DVDs was similar, taking years to grow to the number of titles available today.
Joseph Irvine is an avid entrepreneur who received recognition in Newsweek for charter school admissions lottery software he wrote and distributes through eduLottery.com. He is currently a contractor for ClearPlay based out of the Salt Lake area.
