By Wazir Browne, Vinamra Laddha, Daniel Novick, and Spencer Roane.
As many business enthuses may know, in towards the end of last of last year, Netflix announced its intentions to rebrand and structure its DVD home media rental service as an separate subsidiary company called Qwikster, which would have completely separated its DVD rentals component of its business from its streaming component. In creating this entirely new subsidiary, Netflix’s Andy Rendich, a seasoned employee of twelve years would have been the CEO of Qwikster. The new service would have carried video games whereas Netflix did not. However, the plans for a new subsidiary were scrapped after both consumers and investors alike responded negatively to the news. According to a Bloomberg article on October 25th, “[The] company dropped the most in seven years after the video-rental service said it lost 800,000 U.S. subscribers in the third quarter, more than expected, and predicted more cancellations over a price increase….[And it is reported that the company] plunged 37 percent to $75.28 at 9:39 a.m. New York time, for the biggest intraday decline since October 2004.”
The critical response to this change in service meant that the price for the bundle of Netflix’s services went up, and in line with the law of demand, “Domestic subscribers fell to 23.8 million as of Sept. 30 from 24.6 million three months earlier, a bigger decline than the company projected in September, according to a website statement yesterday”, according to Bloomberg also. Therefore, in October of 2011, Netflix announced that it would retain its DVD service under the name Netflix and would not, in fact, create Qwikster for that purpose.
As a result of the new pricing implementation Netflix's $9.99 monthly unlimited DVD-rental and streaming combination plan became two separate plans: (i) DVD and (ii) streaming, each priced at $7.99. The $7.99 DVD rental plan allows users to check out one title at a time. However the combo plan is still available, but at an increased rate of $15.98 a month. Plus there is a standalone DVD rental plan that allows users to check out two discs at a time for $11.99 per month. The company’s previous markup in 2010 brought $7.99 unlimited streaming up to $9.99 with the addition of 1 at a time DVD-by-mail. This was an effective case of bundling where Netflix pushed more customers to get both options, which meant an extra $2 per customer for the cheapest bundle. This was very beneficial to the company especially given that many streaming customers didn’t even take out DVDs anyway.
Therefore, the problems that arose from the split could have been contributed by DVD customers liking the option of knowing that they could stream online, because based on the new price for unlimited online streaming the price is now cheaper for those enthuses. And the price of unlimited 1 at a time DVD-by-mail is lower than its 2010 price of $8.99, so those interested in that option shouldn’t be complaining. So what really happen at the end of 2011 why so many Netflix customers stop doing business with Netflix?
According to data from Google Trends, as indicated in diagram above, one possible reason was found: the unleashing of the best offer every customer loves- a FREE OFFER: a rise and increased quality in free online movie streaming. Towards the end of 2011 and coinciding with the holiday period, a new popular free movie streaming website started seeing increased traffic along with others to a lesser extent. Watchfreemovies.ch/ letmewatchthis.com increased in search volume from 6 on December 4th to a high of 68.4 on Christmas, while 1channel.ch/letmewatchthis.ch increased from 2.31 to 3.96 over the same time, and Netflix only saw a 3.1 increase. Notably, these free movie sites became braver and even more valuable around this time since they started to even offer box office movies that were still in theatre and also offered the newest shows on air of all varieties. Who can beat that? Would I want Netflix? And do not ask if it is legal, just watch and keep yourself updated with your favorite free online movie site’s multiple changing names.