Skip to main content

Netflix details new strategy: become HBO


When you’ve just become the top movie subscription service in the world, you don’t raise rates without explanation. That comes off as greedy. And if you’re going to apologize for that mistake, try not to announce that you’re splitting your company in half and renaming half of it Qwikster. These actions will lead to 800,000 subscribers jumping ship and send your stock price tumbling from more than $300 a share to about $87 bucks in a couple months.

So what’s next for Netflix? Well, according to CEO Reed Hastings, it’s more problems. Just as we pointed out way back in February, Netflix is just now realizing that it has a problem: its business model is too limited. Without being willing to charge users extra or include ads in programming, it can’t own stream all movie and TV show content (like it does DVDs). The movie and TV studios are beginning to charge an arm and a leg for content. In a way, Netflix is at the mercy of these companies. If they decide not to sell it content, Amazon Instant Video, Hulu, or any other upstart service could easily take over the top spot. Amazon especially, has already built a fairly extensive library of films.

Hastings has a solution though: Less content, more exclusivity. His plan is to become like HBO and buy up exclusive streaming rights to really good TV shows and movies. Netflix will even produce its own content as well. The risk with this new strategy is that people really have to like the smaller amount of exclusive shows. The first TV show Netflix will produce is called House of Cards and is produced by Kevin Spacey.  

Here is a snippet from a letter Hastings sent out to shareholders (via AllThingsD): 

In television… the networks (ABC, FX, etc.) have long relied upon exclusive content to differentiate among themselves. As video moves online, so too has this practice of exclusive content. HBO has an exclusive license to recent Universal movies that includes its online HBO GO, for example. Netflix has signed exclusive licenses for DreamWorks Animation, for Relativity, and others. In episodic television, exclusives are also the norm. Netflix doesn’t license “Deadwood” from HBO because they see strategic value in keeping it exclusive. Netflix licenses “Mad Men” and “House of Cards” exclusively for much the same reason.

…We don’t have to “beat” Starz or other networks to succeed…We won’t have every movie or TV series; but we do provide enough value that consumers also want to subscribe to Netflix.

Any given consumer will have only one of DirecTV or Comcast, say, for their video service. That is classic either‐or competition. But with premium television networks like Netflix, the more good experiences there are, the more consumers are willing to spend to have multiple channels from which to get enjoyment.

 We have to say, it seems odd that Netflix is refusing to do what could be a very good option: add in streaming rentals for new movies and TV episodes. No, people don’t like paying extra, but they like getting what they want when they want it more. 

Editors' Recommendations

Jeffrey Van Camp
Former Digital Trends Contributor
As DT's Deputy Editor, Jeff helps oversee editorial operations at Digital Trends. Previously, he ran the site's…
How a Netflix-like service from Verizon and Redbox might work

With cable subscriptions beginning to decline, everyone wants in on streaming. Though it's late to the game, Verizon is teaming with Redbox (owned by Coinstar) to create a Netflix hybrid service that would offer Redbox DVDs and streaming movies over a Verizon video subscription service. The new service should launch (or be unveiled) later this year (second half of 2012). 
According to Verizon, the new service will give users "the new and popular entertainment they want, whenever they choose, using the media and devices they prefer." We assume this means that it will be available across a myriad of different devices, much like Netflix. 
"The joint venture will combine the accessibility and value of Redbox with Verizon's vision for a borderless lifestyle - where consumers easily accomplish what they want or need to do, on their terms, through the power of the network," says Bob Mudge, president of Verizon consumer and mass business markets.  "Together, we are erasing old technology boundaries, freeing people to spontaneously enjoy the entertainment they want, whenever they choose, using the devices and media they prefer, at home or away."
No pricing has been announced, though we suspect it will be competitive with Netflix, with the streaming service running around $8 per month with a possible price hike for those who want Redbox DVDs, bringing the total to somewhere between $10 and $20 per month. 
How will Redbox be integrated?

So how will Verizon combine its services with Redbox? We've listed a few possibilities below.

Read more
Netflix backpedals: Qwikster is no more, DVDs staying at

CEO Reed Hastings turned Netflix into the country's largest movie subscription service, but lately he can't seem to get things right. After publicly announcing plans to spin off Netflix's DVD-by-mail service as a new company called Qwikster, Hastings has completely backpedaled. DVDs will now stay at The domain now leads straight to Netflix. 
"It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," said Hastings in a blog post. "This means no change: one website, one account, one password… in other words, no Qwikster. While the July price change was necessary, we are now done with price changes."
The reason for this reversal seems to be customer backlash, and we know why. While there isn't really a problem with splitting off DVD rentals into a separate Website, Hastings made it clear that he planned to separate everything: users of DVD-by-mail and streaming would now have two separate bills each month, two separate logins, two separate queues--even movie ratings would be completely separate between the sites. There's really no reason why Netflix wouldn't connect up as many services as possible to make the experience seamless. It seems, when users demanded this ease of use, Netflix decided to abandon Qwikster all together.
What were Netflix's plans for Qwikster and why did it abandon the idea so quickly? With snap decisions like these, the company is starting to resemble HP.  

Read more
Netflix CEO explains price hike, renames DVD service ‘Qwikster,’ adds video games

Netflix CEO Reed Hastings isn't sorry that his company raised prices on its DVD-by-mail service, but he is sorry that he didn't explain it better. Back in July, Netflix ended its $10-per-month DVD-by-mail + Streaming package for no apparent reason and began charging $8 per month for streaming and $8 per month for DVD-by-mail service. Now we know why: Netflix is completely spinning off its DVD rental service as a new company called Qwikster.
"I messed up. I owe everyone an explanation," began Hastings in the public apology and service change announcement. "It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology. I’ll try to explain how this happened."
And explain he does. In the lengthy blog post, he unveils Qwikster, a new company owned by Netflix. All Netflix DVD customers will now be Qwikster subscribers. The new service will have its own website and will allow Netflix to advertise and improve its U.S.-only DVD-by-mail service independently of its fast-moving, hopefully global, Netflix Instant Streaming service.  Those who subscribe to DVD and Streaming services will now have two credit card charges appear each month. Oh, and the service will now add video games to its library, putting it in competition with GameFly. 

"Some members will likely feel that we shouldn’t split the businesses, and that we shouldn’t rename our DVD by mail service," writes Hastings. "Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast – it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further."
Hastings also revealed that the two services will be "a link away" but include some odd barriers. Dual subscribers will now have a few needless hoops to go through. Billing on both sites will be completely separate, meaning  they will have to enter and change their billing/credit card information twice, and TV/movie ratings will not be shared between the two sites.
Why Netflix feels the need to separate the services to the degree of annoyance, we do not know, but it got commenters all charged up. The blog post currently has 1,521 comments as of 7:30 a.m. EST. Hastings himself attempted to answer as many questions as possible, but his frustration showed through. 
"umm, can I clone you? (as you know, you are not in the majority right now)," he asked one positive commenter named Josh Hofer who praised the CEO. 
Below is a video apology from Hastings and an introduction by the new Qwikster CEO, Andy Rendich, a Netflix veteran of 12 years. 

Read more