Tuesday, September 20, 2011

Netflix Might Not Understand Physics

The only constant is change. In Physics, change is also a component of time. But in Nexflix case, strategic change seems to be forcing time to speed up. Understandably, Netflix sees its future in streaming media. It won fans and gained strength as a company because of its DVD rental model. And its fans appreciated that Netflix has embraced streaming to its distribution platform.

The big but is that they do not appreciate that pricing is going up at a level that sent a clear message: "Out with the old, in with the new." Netflix clearly wants to position themselves in the new media world. But the change that they are embracing seems to be on caffeine. They are speeding up the transition faster than the consumer cares for and that could hurt the new business. It is clear strategically what they are doing. Price the old DVD model to pay the high shipping costs and to push consumers to convert to the streaming model. Second, spin off the old DVD model into a separate business, now called Qwikster. A separate brand to not impact the core streaming brand of Netflix. And lastly, most likely within the next year or two, disband Qwikster and make it go away. A new name so that when it does fold (and my prediction it will fold soon), it is less associated with Netflix.

The challenge remains the speed in which Netflix wants to make this change. Hence the Physics angle. And so we must add another component, Force. The force of this change is negatively affecting consumer sentiment. Netflix is hoping that this negative reaction will dissipate, but what if it doesn't. The speed of force of change to the consumer may have long lasting effects and help the competition to rebound. If Blockbuster, Redbox, and others can break through this opening, Netflix could lose valuable business. And like Physics, result in a reaction.