The Netflix Controversy

Netflix, the company that changed the ways that tens of millions of people watch films, is suddenly in controversial waters after a strong period of growth and expansion, losing potentially millions of its loyal customers in the process. The controversy stems from the company’s intention to split Netflix into two separate businesses: one for internet streaming of films in its library and Quickster, the new name given to the company’s traditional business of delivering DVDs to customers by mail. Disgruntled customers took to the company’s website to register their anger, mainly focuses on concerns that customers would now have to pay for two separate subscription services in a time of economic hardship. The company had been adding as many as two million subscribers per quarter, but now could lose a substantial portion of that business. Wall Street is also not happy, with the company’s stock having fallen over 50 per cent since the changes were announced.

Until lately, Netflix was considered by many to be the poster child for how to make the smooth transition from older technology (sending out DVDs by mail to new delivery platforms (specifically online video streaming). The negative feedback began this summer, when the company introduced an unpopular price increase of $6.00 per month for its internet-plus-DVD services. To date, the company has lost about one million of its 25 million customers in the United States due to the price increase, with more expected with the announcement of two parallel services, instead of the combined one-price subscription rate. Industry analysts have commented that the separation reflected the fact that DVDs and online streams had different cost structures and customer demographics. In addition, the streaming catalogue still offer only a fraction of what is available on DVD, pointing to a slow adoption of the more lucrative video streaming service option.

However. Netflix has proven that many people will pay for a premium selection of films and television programs online, helping to create a new revenue stream for media companies and sparking competition from Hulu, Amazon and other competitors. The service has also started new streaming services in Brazil, Mexico and other Latin American companies but access to content has been an on-going issue. Last month, the premium cable channel Starz, which supplies Sony and Disney films to Netflix, said it would stop providing films when its contract expires in February. While other film suppliers will certainly play ball with the company, there is increasing pressure for exclusive content, a game changer that has implications for all involved.

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