Reed Hasting presentation (Source: The New York Times)
Netflix has encountered problems in the recent third quarter as a result of a change in its business model. Similar to the changing face of how we receive and interact with news, Netflix has altered the way we interact with films.
When the change from spoken to written to printed news occurred, there was less of a choice in how society spread news. If the news needed to be given to a fairly small village, spoken news, or word of mouth, worked. Written news became effective for spreading news across a distance and preserving it for posterity. Printed news not only worked for spreading across large distances, but it ensured that everyone received identical information.
In today’s media world, we are shifting to electronic news. Newspapers are a slow process and, to be honest, by the time the news has been printed, the people who care have already heard about it. We can now read the news anywhere, from the broadcast news to our smartphones to the most basic e-readers.
Now the challenge is how to make money off of electronic news being so easily accessible.
The answer? Paywalls.
How does this relate to Netflix though?
Obviously, Netflix has revolutionized how we watch movies. Instead of rushing out to sit in a sticky movie theater with bunches of strangers, we choose to stay home and sit on the couch with the movie that was delivered earlier in the week. The best part? We can return it anytime and get another movie just as quickly. Or even better we can do it all online. The convenience of it all is the driving force.
Yet, similar to the online versions of the newspaper, Netflix was giving out there services at more of a cost to them than a profit. So the plan had to change.
Reed Hastings, Netflix co-founder and CEO, recently decided that he should mess with a good thing. The idea was to split the Netflix video streaming and DVD delivery service, requiring customers to have two accounts in order to use both services. To compound that, he also decided a price raise from about $10 to $16 would be a good idea.
In the wake of the price increases, Netflix has lost 800,000 subscribers. While the plan to split streaming and delivery services did not materialize, it seems inevitable, much to the dismay of the subscribers still holding on.
Hastings has said that his changes may have been too quick and he should have taken the advice around him a bit more seriously.
As unfortunate as it may be, a large reason that many newspapers still thrive is because of the online paywalls instituted to make a profit. You simply cannot give away free news and expect a paper to survive. So, whether Hastings jumped too far ahead of himself or not, in order to keep his company in competitive shape, the price increase had to happen.
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