Stepping in where Netflix CEO Reed Hastings failed, the WSJ provides an explanation of why Netflix announced the DVD/Streaming split yesterday:
According to person familiar with his thinking, Mr. Hastings is willing to endure the current drubbing because the long-term dynamics indicate that people will be less and less reliant on the DVD side of the business. By separating the two now, Netflix appears to be preparing for the day when the DVD business dwindles or even disappears.
Netflix expects its DVD business to remain viable for only about 15 more years, the person said. Separating the two businesses could keep the DVD operation alive longer by letting its managers concentrate on their own needs, without the distractions of running the online business.
The article also discusses how the licensing arrangements for DVDs and streaming content differ:
Among the factors making the DVD and streaming businesses so different: Streamed versions of movies remain subject to the complex “windowing” deals studios strike with television broadcasters and others. Generally when movies are being shown on premium-cable channels like HBO and Showtime, for instance, they cannot also be available on a service like Netflix. By contrast, Netflix owns outright the DVDs it rents, and can do with them as it likes.To preserve discounts on bulk purchases of DVDs, Netflix has been willing to make concessions such as waiting 28 days after some movies come out on DVD before offering them to mail-order subscribers. Studio executives view that as a way of protecting DVD sales. Last year domestic DVD and Blu-ray sales generated $5.6 billion in revenue for the studios, according to an estimate from IHS. Physical movie rentals, meanwhile, generated $1.6 billion.
I agree that Netflix is right to put their money on the streaming side of the business. The problem is that Hastings explained none of this in his email yesterday, beyond a very basic reference: “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.”
And the other problem is that by focusing on his long-term goals, he’s made it vastly more difficult for his customers in the short-term as well as destroying an immense amount of goodwill and brand equity.
With competitors like Hulu plus, Amazon, iTunes, cable, and even Blockbuster at his heels, yesterday’s announcement and the company split was just a stupid, stupid decision. And the ridiculous name Qwikster just serves to further make people wonder just what exactly this guy is smoking.
Can Netflix survive? And at this point, do I care if it does?
