Say Goodbye to Qwikster

Reed Hastings knows a mistake when he sees one. Thankfully, he isn't too proud to course-correct when the situation calls for it. He ended Netflix's (Nasdaq: NFLX  ) ill-fated Qwikster experiment last night.

"We underestimated the appeal of the single web site and a single service. ... We greatly underestimated it," Netflix spokesman Steve Swasey told The New York Times, signaling the end of Qwikster before it began.

Color me relieved. For as much as I believe in Hastings -- and I believe enough to bet real money on his company -- even I had to admit that Qwikster sounded dumb and unnecessarily complex. My Foolish colleague and Motley Fool Rule Breakers teammate Rick Munarriz said it best when the Qwikster news first broke:

"As crummy an inconvenience as this will be for the folks on dual plans, it will also help fortify the platform that Netflix sees as the future. Netflix won't tell you that it values its streaming subscribers over its mail-based couch potatoes, but it's true."

Up until Qwikster, Netflix never gave the impression that it valued streamers over shippers. If anything, the company promised precisely the opposite. Get movies or TV shows either online or in the mail, fast, with one low price. Watch them wherever you are.

Qwikster broke that brand promise by putting customers in two boxes: Go here if you want movies online, here if you want them mailed to you. Oh, and you'll need two log-ins. It was just the opening Amazon.com (Nasdaq: AMZN  ) and Hulu needed.

To be fair, Netflix wasn't and isn't dying. New streaming deals with DreamWorks Animation (Nasdaq: DWA  ) and former Cablevision subsidiary AMC Networks (Nasdaq: AMCX  ) show Hastings has the chops to book streaming deals consumers want.

And yet even Hastings knows he got it wrong with Qwikster. "Moving forward step by step, despite the foot with the bullet hole," he wrote in announcing the DreamWorks deal on his Facebook page.

Today the wound's been bandaged; next comes the healing. Expect it to take awhile. Do you agree? Disagree? Please vote in the poll below and then leave a comment to let us know what you think about Netflix ending its Qwikster experiment. You can also add any of these stocks to your Foolish watchlist for ongoing coverage.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Netflix at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

Motley Fool newsletter services have recommended buying shares of Netflix, DreamWorks Animation, and Amazon.com. Motley Fool newsletter services have recommended creating a bear put spread position in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 


Read/Post Comments (36) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 10, 2011, at 9:46 AM, kariku wrote:

    What kind of sick market manipulation is this ???

  • Report this Comment On October 10, 2011, at 10:03 AM, TMFCop wrote:

    Tim,

    I'm not sure how many subscribers NFLX would have lost over splitting the business in two with Qwikster, but we know growth ground to a halt when it hiked prices -- and that they're digging their heels in on.

    This decision is really just a half measure. They need to undo the price hikes and admit they made a big mistake there before NFLX can get going again.

    Rich

  • Report this Comment On October 10, 2011, at 11:15 AM, yocari wrote:

    At this point it just seems like Hastings is just looking for new ways to APOLOGIZE to his customers. "I build things up and I tear them down. I sorry."

    I actually dropped the mail side of my account a week and half before the announcement to split - I wish I had that kind of foresight with my investments as well.

    These moves opened the door for Hulu & Blockbuster and ultimately commoditize something that had the illusion of being proprietary for Netflix. #ConsumersWin

  • Report this Comment On October 10, 2011, at 11:33 AM, Wyphy wrote:

    I know that they lost this customer. I canceled my 2 Disc with streaming account the day they announced the split.

    I called them to cancel rather than do it online, and gave them no doubt as to the reason for my cancellation.

    I'm glad to hear that they canned this terrible idea, and I'll probably resubscribe, but I'll probably wait a month or so to see what happens now.

    Of course, I now wonder what kind of foolish ideas they'll come up with in the future.

  • Report this Comment On October 10, 2011, at 11:54 AM, caltex1nomad wrote:

    I must have been the only person who thought the split was a good idea. Maybe not the exact way I would have done it but, I liked it. DVD's will be gone within 5 years and now they will just wither and die on the vine at Netflix instead of Quickster. They just closed the Blockbuster in my town so Dish/Blockbuster is moving toward the stream also.

  • Report this Comment On October 10, 2011, at 12:20 PM, TMFDukenewkirk wrote:

    The new name sucked, the price hike was absolutely necessary and I believe the company will survive it. It's great to get something super cheap, but if it means the quality of content would have to remain that way(obviously cheap), and the only way the business survives is as an $8/month service, it wouldn't be long for this world. I want Netflix to one day be a big media player, preferably the biggest, and they aren't getting there as an $8 service because the media itself will have to demand more than that in order for anyone to bother producing it.

  • Report this Comment On October 10, 2011, at 12:31 PM, davejh23 wrote:

    "We underestimated the appeal of the single web site and a single service. ... We greatly underestimated it,"

    In other words, "We don't even understand our own business...who knew we could lose MILLIONS of long-time subscribers so quickly?"

  • Report this Comment On October 10, 2011, at 12:36 PM, wodeqian wrote:

    They lost me as a dual subscriber whn they announced and I doubt I will be going back.

  • Report this Comment On October 10, 2011, at 12:38 PM, davejh23 wrote:

    Bottom line, they don't have THE best in class streaming service, and who knows if they ever will? They're competing with multiple competitors that have multiple revenue streams that are in a position to put them out of business if they really want to.

  • Report this Comment On October 10, 2011, at 12:38 PM, jdp245 wrote:

    Problem is, the damage has already been done. It is good to see that they are willing to pivot and take back a bad decision, but it is distressing that it seems to happen so often with this company. Remember the separate queues issue? Throttling?

    I predict that the reason they did it is because subscriber numbers were plummeting. October 24 is going to be another blood bath for this stock.

  • Report this Comment On October 10, 2011, at 12:40 PM, GrumpyOldGuy wrote:

    Netflix has permanently (at least for the foreseeable future) damaged its brand. I will never feel any personal bonding to the brand again and I will continue to experiment with other vendors for comparable offerings.

    Honesty counts and NFLX has failed that test. If they needed to increase prices because of content costs they should have clearly laid out the case for raising prices instead of expecting its customers to just roll over and take it.

  • Report this Comment On October 10, 2011, at 12:45 PM, FutureMonkey wrote:

    I find the lashing of Reed Hastings and Netflix business to be excessively harsh.

    The price raise was absolutely fine in my book as a customer, I had thought they weren't charging nearly enough for the exceptionally easy to use, high quality, and diverse service they provide relative to all other media access available to me. It's still cheap and it's still easy, high quality, and diverse.

    The quickster fiasco was clearly a mistake and everybody let Reed know it the day after it was announced. I'm very happy to see that abandoned. Rarely do companies so quickly respond to their customers wishes the way Netflix did. That is a hallmark of a customer centered management (vs. Bank of America that references duty to shareholders as it's top priority over duty to customers).

    What troubles me is that Reed didn't get or didn't listen to this obviously negative feedback while in the planning stages. Is he surrounded by "yes men" or was everybody so immersed in the planning and process that nobody stopped to ask, what will our customers do. You know they have methods of gathering this information. Were their focus groups lying to them, did they not vette the Quickster concept through focus groups, or did they ignore the result?

    Anyway you slice it, Hasting's stumbled, but is correcting the problem.

    FM

  • Report this Comment On October 10, 2011, at 12:54 PM, mrbrainwash wrote:

    i didn't think splitting the services out was such a bad idea. I did however think the way they handled it was disastrous (Qwikster, really?)

    But they are right to think they better start to rebrand themselves from a snail mail/DVD company to the premier streaming company, even if that means marginalizing the dvd mail service. If they are forever the mail/dvd company with the red envelopes, they will be dead in a few years when DVD's die completely for streaming media.

    When your biggest competition is a vending machine in a walgreens... time to make some changes

  • Report this Comment On October 10, 2011, at 1:02 PM, BillKaufman wrote:

    I've read too many articles today regarding the praise analysts are giving to Reed for backtracking on his decision.

    Why the praise when, from the start, almost everyone thought it was a bad idea? Why are people calling for his departure since he obvisiously is losing touch with his customer base?

    Reed gets praise for his hindsight yet millions of customers and investors lost much.

    I wish I could make a horrible decision and only after everyone knows it was horrible, apologize and be hailed a prophet.

  • Report this Comment On October 10, 2011, at 1:09 PM, ddd3dvideo wrote:

    Obviously from a PR standpoint this is an epic blunder for Netflix and one that will likely lead to some management changes. With that said, could this be the beginning of new era. An Era of customer focus where businesses start shifting from the investors back on to the customers? If that's the case, look out NBA...

  • Report this Comment On October 10, 2011, at 1:43 PM, vshust wrote:

    The price increase didn't trouble us at all; even though we are probably relatively modest users, it was still a good deal in my opinion. I really don't care whether we stream or use DVDs; I just want to be able to watch what I want to watch. Netflix makes for great one-stop shopping, and I can move titles to my queue whenever I'm in the mood to think about it. With both streaming and DVDs available at a single website, Netflix can be where I go to watch movies without having to think about how that movie will be delivered.

    Streaming is clearly the future of at-home watching, but there are still quite a few things not available for streaming. I know that there are plenty of competitors for streaming services, but we're all set up for Netflix streaming, which is familiar and easy to use (once our son gave us a couple of tutorials). I'm betting there are plenty of others who will stick with Netflix for the familiarity, the ease of use, and the great customer service, willing to send out a replacement DVD immediately if you get a dud, which is bound to happen on occasion with DVDs. I have no idea how one would explain to a vending machine that the DVD was unplayable, but it's very easy to request a replacement on the Netflix website.

    I'm delighted with the decision to stop Qickster in its tracks since the 2 separate websites would have made for a much less elegant movie selection process for those of us who both stream and use DVDs. I'll move to exclusive steaming when it provides all the content I'm interested in viewing, and, if Netflix keeps me happy as a customer, I'll be doing my future streaming with them.

  • Report this Comment On October 10, 2011, at 2:09 PM, davejh23 wrote:

    "I'm betting there are plenty of others who will stick with Netflix for the familiarity, the ease of use, and the great customer service, willing to send out a replacement DVD immediately if you get a dud, which is bound to happen on occasion with DVDs. I have no idea how one would explain to a vending machine that the DVD was unplayable"

    I've had it happen with Redbox...just e-mail customer service. They refunded my $1.06 and sent me 2 free movie codes...and I was able to return the movie the same night and get a good copy they night I actually wanted to watch it. Netflix isn't the only company that believes in quality customer service. Though they do seem to be the only ones interested in actively destroying their brand.

  • Report this Comment On October 10, 2011, at 3:15 PM, DBrown7 wrote:

    Anyone remember New Coke? Even the best businesses make mistakes. It might be a bit premature writing off Netflix.

  • Report this Comment On October 10, 2011, at 3:30 PM, ETFsRule wrote:

    Wow, maybe they really were listening to us after all

  • Report this Comment On October 10, 2011, at 3:34 PM, JeF4y wrote:

    All this does is make them look even more stupid (since, well, "foolish" would be a good term here). By the time the stock recovers DVD's will be well obsolete and Netflix will have to phase them out or sell the business off. They made a stupid move to begin with splitting the business the way they did and now they look even dumber trying to piece it back together. It's like they're playing a bizarre game of "What can we do to erode market confidence and shareholder value?!"

  • Report this Comment On October 10, 2011, at 3:42 PM, BigTimeRook wrote:

    The market appears to LOVE this move :-(

    Way to shave more value from your stock.

  • Report this Comment On October 10, 2011, at 3:49 PM, CommonScents wrote:

    I think Netflix is trying to develop the single most interesting business school case-study in modern history......maybe now fire Hastings, surge back as an industry leader, purchase Walt Disney, and then bring back Hastings......this sounds like a GREAT case-study to me!

  • Report this Comment On October 10, 2011, at 3:56 PM, UncJim wrote:

    I'm sorry, but this is just more evidence of the utter panic flailing of a drowning company.

    With all the strange activity this year (inlcuding hastings dumping of NFLX) there is no reason to trust the leadership of this rudderless tug.

    To think, they had millions of folk blissfully forgetting they were paying every month for a service they barely used. But that was too east. Hasting decided to bring everyone's attention back to the slow leak in their wallets and at the same time, decided to annoy the hell out of them.

    No. This company has the sickening inevitability of a sun being devoured by a black hole. It may take a while, but the end is already known.

  • Report this Comment On October 10, 2011, at 4:09 PM, davejh23 wrote:

    "The market appears to LOVE this move :-("

    Wow! I hadn't even looked at it after the initial pop this morning. It fell 12%+ intraday and made a new 52 week low. I'd say there's much more downside potential...especially considering that analysts still have a $200 price target on the stock, they've recently lossed millions(?) of subscribers, and 2012 EPS will likely be flat at best...~40% shy of current estimates...which means, even at a 52 week low, it's still trading at a forward EPS multiple close to 30. If they did, and continue to lose a significant number of subscribers, this isn't looking like a growth stock anymore...would it even deserve a 15 multiple? I think it's going to < $60/share.

  • Report this Comment On October 10, 2011, at 4:26 PM, memoandstitch wrote:

    Reed is one messed up CEO.

    People should learn the lesson that subscriber growth is not a good enough reason to invest in a company. Look at Zipcar next.

  • Report this Comment On October 10, 2011, at 4:30 PM, davejh23 wrote:

    If they're really increasing spending on content, and they lose a large number of subscribers at the same time, they could be looking at $0 retained earnings for Q3/Q4. Probably not likely, but looking at the Q2 balance sheet, we were already starting to see some cracks...

  • Report this Comment On October 10, 2011, at 5:14 PM, 77jackson wrote:

    The split and pricing increase was a bad idea.

    I fault Stock Advisor for not realizing and continuing NFLX as a core investment (both David & Tom) and not warning us to not invest through all the summer's rumblings. This was my initial buy which is now worth less than half what I paid for it.

    77jackson

  • Report this Comment On October 10, 2011, at 5:30 PM, jssiegel wrote:

    I never said hello. Streaming over DSL ain't worth the effort. And when ISPs start charging by the gigabyte on cable/fiber bandwidth like they do on wireless, streaming will join the dodo and diplodicus.

  • Report this Comment On October 10, 2011, at 5:42 PM, akutach wrote:

    Average monthly expenses:

    Gas&Electric $100

    Trash/recycling $25

    Landline/DSL $55

    Cell phone $40

    Directv $65

    Netflix before split $9.99

    Netflix after split $15.98

    What is everyone griping about so much? The difference is less than a burrito at Chipotle. My question is why do I pay so much for Directv that I barely watch more than I do DVDs and streaming.

    I'm sympathetic to Reed because I too fail to understand why it's such a big deal to people. IT'S NOT. If you're scraping for your last dollar then maybe you should make yourself a pot of beans and rice rather than two meals of fast food and you'll come out ahead (and get some nutrition). If you still can't get the money doing that then your problem is your financial situation and not really a problem with Netflix's offerings.

    Post-split service, Netflix is still far and away my highest value:cost monthly bill that I pay. Aside from Amazon Prime, it's not even close to anything else.

  • Report this Comment On October 10, 2011, at 6:06 PM, MojoJoe wrote:

    THANK GOD. I love Netflix, but dread the whole Quickster idea. I think the business will begin to rebuild.

  • Report this Comment On October 10, 2011, at 9:54 PM, hegibson wrote:

    This CEO has made one blunder after another of late. The stock is down to $111 a loss of monumental proportions from its high. He keeps sticking his foot in his mouth. Why doesn't he turn the PR over to the professionals? Stay off FB.

  • Report this Comment On October 10, 2011, at 11:24 PM, arefool2b wrote:

    Can't wait for Q3 in a couple weeks. This quick turnaround by Hastings portends quite the hemorrhaging of the 12 mil core subscribers who were on both DVD and streaming plans. Even a small decrease will send this stock screaming south of $100.

    I got my "please come back" email today and had to laugh. Hastings' maneuvers have demonstrated such a consistent ineptitude, they're as entertaining as some of their flicks!

    But on a serious note, I've been doing my homework - reading up on Fisher's 15 points in "Common Stocks" and how this gang violates way too many of them to be "core" in MF. In any case, I cut the fool team some slack because this has been a drama-queen roller coaster that even the best of the analysts can't wrap their heads around.

    It will be very interesting to watch how it all turns out.

    Fool on and enjoy the show!

  • Report this Comment On October 10, 2011, at 11:47 PM, wolfienola wrote:

    I had been a VERY LOYAL customer to netflix for many years and was one of the first to buy the Roku box for streaming to my TV. The separation of the businesses was just stupid. Netflix doesn't have the streaming content for that side to stand alone. Since I became streaming only since the price hike, I have gone to Amazon several times to stream movies to my TV via Roku that Netflix doesn't have. I have Netflix to thank for realizing that Amazon is a viable alternative. Now that they have abandoned that plan, I may even add 1-DVD at a time back to my account. But they really need to address content on the Watch instantly side to stay in the game. The selection is so random and arbitrary, you really need to add the DVD catalog to offer a complete source. Anything other than a complete source will drive customers to the competition.

  • Report this Comment On October 13, 2011, at 1:57 AM, nick1200 wrote:

    Average monthly Netflix bill: 7.99 - 15.98

    Average monthly iPhone bill: 95.00

    Average monthly Gas bill: 350.00

    I agree that Netflix has one of the best cost/value rtio around. I continue to be a supporter of a great company. No complaints here.

  • Report this Comment On October 14, 2011, at 12:20 PM, Threedollarbill wrote:

    If New Coke doesn't work, go back to Old Coke. I think more CEOs should heed Hastings' mistake, and hopefully he'll listen more to what his customer's needs and wants are from his business in the future.

  • Report this Comment On October 14, 2011, at 9:49 PM, brokeassbroad wrote:

    This almost four minute clip from SNL pretty much sums it up (in a fairly hilarious manner):

    http://www.hulu.com/watch/284938/saturday-night-live-netflix...

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