Netflix Inc: Streaming Away from DVDs
This case examines the rise and fall of two leading video leasing service providers in the United States. The first company, Blockbuster Inc, is unable to withstand market forces by adapting to the changing technology. As a result, Blockbuster is declared bankrupt following errors in management and decision-making. The second company, Netflix Inc (Netflix), continues to struggle, even as it reports the sharpest decline of subscribers since its establishment. As the case expresses, the once video giant- Netflix, is endangered by market threats such as increased competition from video kiosks and illegal downloads (danielwatrous.com). As a response, Netflix founder and CEO, Reed Hastings, announced two major changes: splitting the company and increasing the subscription fee. However, was it the best decision and what were the available options?
Hastings had several other options to consider in his response to the market threats. The first was to avoid company split, but instead increase the available content. If this were not enough, Hastings’ second option would be to increase the subscription fee gradually, giving the customer enough prior notice. This would not attract huge subscriber’s outcry, as was his sudden rise from $9.99 to $ 15.98. Cognizant of the necessity of the company splitting, Hastings’ last option would be to split the company prudently and restrain from raising subscription. A cautious split involves engaging the clients accordingly by sufficient notice and giving justification for the intended split. A successful company split would then have guided the necessity and appropriateness of raising the subscription fee. A prior announcement of the envisioned split would have enabled the company to address the question of convenience as raised by the clients.
If I were in Hastings’ position and considering the rationale for splitting DVD and online streaming services, I would have implemented the last option. I would have embraced the cautious, and careful company split without an immediate increase in subscription charges. Further, I would advocate the business names that retain the brand effect. For example, names, such as Netflix DVD Service and Netflix streaming Services bear the mother name- Netflix, which is the brand name. Announcing the intention to split is not just a sign of humility but also makes customers feel valued, thus increasing their loyalty.
What were the drawbacks of Hastings’ decision? As outlined in the case, Netflix lost over 800,000 subscribers while its stock value fell from $300 to $63 as a result of Hastings decision (danielwatrous.com). This clearly shows that the decision was a failure and a huge cost to the company. Among the reasons for this outcome was the loss of brand name. The DVD customers were now dealing with a whole new brand, Qwikster, as opposed to the household name, Netflix. There was also the burden of increased product cost that would see the disloyal customers switch to the low-cost service providers
Northeasterb University, College of Business Administration. Netflix Inc.: Streaming Away from DVDs. (2012). Web. https://mba.danielwatrous.com/wp-content/uploads/2014/02/netflix.pdf