Dave Lee

Matt Drance has written a better letter that Netflix should have sent.  It’s genius.

In the 14 years since we started Netflix, we’ve gained more than 25 million customers worldwide by providing the best DVD by mail service anywhere. Along the way, we’ve built an unrivaled streaming service that continues to grow every day. Today we want to tell you about some big changes at Netflix as we get ready for the future.

To begin, we’re adding a video games upgrade option to our DVD by mail service. Similar to our upgrade option for Blu-ray, DVD members can now rent Wii, PS3 and Xbox 360 games. This is something we’ve been asked to do for years, and we’re pleased to finally provide it.

As we worked on this new addition, we could no longer deny that the DVD and streaming services are growing apart very quickly. These are in fact two very different businesses, with different customer needs. We even have different offices for them! Providing an experience that simultaneously addresses these two very different worlds has become an increasing challenge for us as we grow the company and evolve the website.

That’s why today we’re announcing significant changes to our company. First, we are renaming the DVD by mail business to Netflix Classic. This is the same DVD rental service you’re used to, but it’s more than just a name: Netflix Classic is a new company, operating independently as a subsidiary of Netflix.

Moving forward, Netflix as a company will be dedicated to streaming media. This is a realization of our original vision, and of the company’s name: watching movies over the Internet. The Netflix.com website and mobile apps will exclusively service our streaming library. DVD members will manage their queues at classic.netflix.com.

If you subscribe to both services, you’ll see two charges on your credit card instead of one, but you’ll pay the same total amount per month you do now. This, along with our recent pricing changes, is just a necessary outcome from creating two separate companies. DVD members will of course still receive the same red Netflix envelope that has been familiar to them all these years.

Members can log into both sites using the same login. This will allow streaming-only members to add DVD by mail, and DVD-only members to upgrade to streaming, at any time. The websites, however, will remain separate, so that we can start giving these different worlds the unique attention they deserve.

We think the benefits are going to be huge. We’ll be rolling out the new websites in a few weeks, and you’ll see right away what we’re able to accomplish by providing a dedicated experience for each service. Until then, check out this video we made to see just a few examples of the new sites in action.

We want to thank you for supporting us for all these years, and we are very excited about all the new benefits Netflix and Netflix Classic are about to bring you. We can’t wait for you to try it out yourselves.

Netflix still has some time to revert this crisis.  If I was Reed Hastings I’d hire this guy asap on a contract job to help write a follow-up letter.  Reed Hastings (CEO) original letter has already gotten 24000 comments and most of them from furious, disenchanted customers.  Netflix stock is down a lot.

Reed Hasting, CEO of Netflix, sent out this email to all Netflix subscribers.  I was disappointed to say the least.  Just a couple months ago Netflix announced they were increasing prices and charging separately for streaming and DVDs.  My wife and I were on the fence, debating whether to keep Netflix or not.  But it’s good to have just in case (Currently, Apple TV is our preferred method to watch movie rentals).  We’re also Amazon Prime members so we could get Amazon streaming, but it doesn’t work with Apple TV, at least not yet.

Last Friday Fred Wilson came out defending Netflix as still the company to beat in streaming.  And some folks even praised Reed Hastings’ email and decision like MG Siegler and John Gruber. 

But I think there’s something more fundamentally wrong with what Netflix is doing.  Netflix unified (streaming + DVDs) is better than anything out there (Apple TV, Amazon, Hulu, etc).  But Netflix/Qwikster separated is a different story.  Apple TV movie rentals is better than Qwikster.  And Amazon streaming will likely reach parity with Netflix soon (unless Netflix really updates their streaming catalog with lots of new releases).

There’s currently over 13,000 comments on Reed’s post and most of them are negative.  Some customers are furious.  Most just plan to quit Netflix.

It doesn’t make sense that current users need to have two separate accounts, two separate websites and two separate payments.  Why?  Can’t Netflix just focus more on streaming but keep DVDs as is (cause it gives value to customers and keeps them on streaming too)?

I read through a bunch of comments, and I hope Netflix really reads each one carefully.  The users are articulating a lot of good points.  I hope Netflix navigates these stormy waters well.

This morning Fred Wilson of avc.com wrote in his daily blog his thoughts on the economy.

We are undergoing a big time technological revolution that is disrupting big industries and big companies all over the place.

And he writes further:

We are crossing a huge chasm from an industrial society to an information society. And there is immense pain in that transformation. Obama can’t solve the problem nor can any of his opponents. Time will solve this problem as new industries get built, people learn new skills and new jobs, and we dismantle entitlement systems that are not sustainable.

It’s refreshing to see someone get the bigger picture.  I remember sharing with my wife a few weeks ago that the bigger problem in the economy is the huge shift of jobs disrupted by technology.  The new “skilled” worker is someone who is taking advantage of technology in some way. 

It reminds of Thomas Friedman’s The World Is Flat .  If you haven’t read that book, it’s a good one.

More and more people in China and India are online and are getting paid to do work such programming, research, data entry, phone calling, accounting and even sales.  This is more competition for the U.S. worker.  And this is the bigger picture of the economy.  The world’s borders are more porous than ever because of the Internet, and the U.S. workforce must compete internationally and must compete with skills.