Why Netflix Chose to Create a Bad Customer Experience

Netflix Was Forced To Make This Change

Netflix knows that the recent price hike and company splitting is not good for their customers in the short-term. They also know that the movie industry would have killed the company long term if they did not make this change. Netflix was extremely slow to adapt to the climate, they fed off their DVD business for quite a while, and they did not venture into streaming soon enough. They had to finally act or face a long and slow death. Let's break down what is really happening here:

Netflix is struggling to negotiate deals for its streaming service with movie studios. The movie industry does not want to end up like the music business which is controlled by Apple; they have tried very hard to fragment their distribution so that no one entity has control over them.

Netflix was typecast as a DVD rental business, a replacement for Blockbuster. The movie industry loves the business Netflix is generating from DVDs and is not worried about helping Netflix succeed long-term. If Netflix falls down there is a new company that can become the new Netflix. The movie industry is very cautious about any one company becoming too powerful in the movie rental business; let's not forget that they own Hulu (which they have been trying to sell for quite a while).

So, Netflix can't get the streaming deals signed with the movie studios because the movie industry does not want to give them too much control. The studios love that Netflix is moving DVDs and they keep giving them access to their libraries for the DVDs.

Reed Hastings has no choice but to make this change if he plans to keep Netflix relevant. He has to win the market with the streaming service. The movie industry would have killed the company if Netflix had kept going the way they were going.

Will Netflix Remain Relevant?

The question at hand is: will Netflix, knowing they had to create a less ideal customer experience, be able to remain relevant in the future? Will they be able to get back on track?

It's a tough business and design problem: balancing business goals with user needs. We deal with this everyday in our consulting. If you leave business goals for after you build your product, then it's very hard to make changes to the core functionality to accommodate the revenue stream. If you leave the user needs out for after you build a product you might not have a usable product at all.

Netflix is in their current trouble because they have not been able to push the market. This happened because they've had a hard time negotiating deals with the movie industry. It will be interesting to see if the recent changes will help them strike those deals.