The Silver Lining of the Netflix-Qwikster Divide

The Silver Lining of the Netflix-Qwikster Divide

Photo courtesy of Ross Catrow, via Flickr

Once again, Netflix users are furious with Netflix. Earlier in the week, Netflix announced that it would split into two companies. The streaming, “Watch It Now” branch will still be called Netflix, while the DVD-by-mail service will take the name Qwikster. Subscribers to both will have to manage two queues, two recommendation systems and two monthly bills. It does sound pretty annoying. But how bad is it, really? To play devil’s advocate, I’m going to defend the position that this Netflix shift isn’t nearly as awful or misguided as it appears. Let’s start with what this change means in terms of immediate user experience, then move on to how this will affect users down the line.

The Service is Basically the Same

Yes, there are two companies now, and, yes, there are two bills. But those bills do not add up to anything more than Netflix subscribers were paying before if they belonged to both the DVD and streaming plans. And, as Yasar pointed out, Netflix has been quietly separating the streaming and DVD queues at least as far back as January.

What’s more, the content is not going to be different. In fact, it might be better in a couple of ways. First, Qwikster is set to start a premium video game rental service, similar to the Blu-Ray upgrade on offer. Second, all those Netflix users jumping ship will make it easier for Netflix to negotiate the rights to streaming content.

Earlier this month, Starz Entertainment ended its relationship with Netflix in part because Netflix’s user base had grown large enough to pose a threat to its traditional programming on cable. It did not want to compete with itself. Now, a leaner Netflix is in a good position to get back some of that lost content, and it’s given a second chance to hold onto that content as it expands.

Why would it be different the second time around, you ask?

DVDs and Cable are Dying

Down the line, companies like Starz will not have to worry so much about their performance on DVD and cable, because those markets will be smaller than they are right now. This process has already started.

In the beginning of 2011, a Hollywood trade group reported that DVD sales had dropped by 20% when compared to the previous year. This doesn’t seem to be a problem we can solve with new and better discs, as Blu-ray has only been adopted by 15% of all households in the US. Along the same lines, cable companies have lost record numbers of subscribers. As Blu-ray, DVDs and cable deal with market erosion, companies like iTunes and Roku continue to grow. Even Microsoft wants in on cable’s turf with the planned release of an Xbox-based streaming video service.

To bring this back to Netflix, some commentators think Qwikster is a brand that was designed to die off with the DVD in a few years–or at least designed to be sold to Redbox or another competitor. Dan Frommer of SplatF even goes as far as to suggest Netflix is deliberately sabotaging Qwikster with a terrible name.

If cable and DVDs go the way of VHS and the dinosaur, then Starz and others are less likely to choose cable and DVD sales over selling Netflix the right to stream their movies and TV shows. If Netflix has timed this right, in a few years we’ll be enjoying streaming movies almost exclusively.

Of course, there’s no way to be sure that Netflix has timed this right. Only time will tell if this was a daring bit of strategy or the Internet equivalent of New Coke.

What are your thoughts on the Great Netflix-Qwikster Divide of 2011? Will you change the way you get your movies as a result? Please let us know in the comments.

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