The Future of Netflix - Are They Self-Destructing?

Why Netflix might be heading even farther downhill.

I've written before about the various mistakes that Netflix has been making, but it seems that they are reaching the point where they might be heading for serious failure. When Netflix came on the scene with their too-good-to-be-true DVDs by mail service, they answered a serious need in the entertainment market. They set themselves apart by offering a wider selection of videos than a customer could find in a typical video rental store and they didn't charge late fees. As a result, customers flocked to their service in droves. When they added streaming video, the deal just got sweeter.

In the business world, finding a need and filling it are key. It's important to create a strong brand identity and a clear corporate culture. Netflix did this as well as anyone. The bright red envelopes always looked happy and I loved being able to rent hard to find movies instead of being forced to choose only blockbusters and recent popular movies. I wasn't the only one, and as a result of their success, they managed to change the movie renting business and run many movie rental companies out of business.

Now, it seems as though they are losing touch with the very spirit that made them successful in the first place. It is sad to watch a company self-destruct, but that may be exactly what's happening. For years, Netflix has been doing everything right. In the last 6 months, however they have made several mistakes. Here is a look at them:

Netflix raises price; starts Qwickster - On September 1st, Netflix raised their prices for DVD by mail. Prior to the increase, customers were paying $10.99 a month to receive unlimited streaming videos and one at a time DVDs by mail. After September 1st, customers were forced to either choose unlimited streaming for $7.99 or the DVD by mail service for $7.99. They renamed the mail-rental service Qwickster and customers who wanted to have both options had to subscribe to them separately. This would mean spending $7.99 for the Netflix streaming service and then another $7.99 to Qwickster for the DVD by mail option.

This price hike made customers leave the site in droves. Stock prices went down and recently, CEO and founder Reed Hastings issued an apology for the price increase and assured customers that they were done with the increases and that there would be no additional increases. He asked customers to be patient as they make these changes and promised to still be the same Netflix that we all know and love. However, the price increase stays in place.

Losing Starz content - Right after the price increase, Starz refused to renew their licensing deal with Netflix. Although the Starz content is only about 8% of their library, it represents the most valuable content and includes Disney titles as well as many newer releases. For many customers, this will make the service less attractive.

Streaming limits - This one isn't technically a recent mistakes, but it has become a big issue now that many people have been forced to change their plans. The unlimited streaming video only service used to cap users so that they were only allowed to stream one movie at a time. However, the cheapest combined plan (streaming + one at a time DVD by mail) allowed for 2 simultaneous streams. On Sept 1st, many customers were upset that the unlimited streaming plan didn't allow for multiple streams. Netflix changed this so that all of the streaming subscribers can stream two movies at the same time. However, for more than 2, customers will have to upgrade to more expensive plans.

This might seem like a small issue, but it really isn't. The future of entertainment consumption is mobile devices. For example, if you have a kid watching a movie on the Xbox in their room, another one watching on a laptop and you wanted to watch something on your iPhone, you would have to wait until one of the other movies was over. Also, with mobile devices, people can use their Netflix account from anywhere, so this becomes a bigger problem.

My fear is that Netflix is moving away from the things that made it a success in the first place. They have been in talks with Dreamworks to license their content and have lost the Clarion content that was important to subscribers who enjoy independent films and other harder-to-find content.

When I look at the big picture, I think that Netflix is trying to grow and in the process, they are turning into the very company that they were trying to fight. Reed Hastings created the company as a result of getting fed up and frustrated by late fees when he went to return DVDs. He thought, "There must be a better way!" and set out to prove it. Now, he is turning his company into one that will have many young, motivated people thinking that there must be a better way.

What do you think about all of the changes with Netflix? Do you think they are going to self-destruct?