3 Messes That Netflix Needs to Clean Up


The Qwikster jokes are already old. No one's lampooning Netflix (NFLX) CEO Reed Hastings anymore.

It's back to business as usual for the video buffet operator Netflix -- or is it?

Heading toward next week's quarterly report, Netflix is facing more questions than it has answers to spare. The stock continues to linger near its 52-week low, shedding nearly two-thirds of its value since peaking at nearly $305 over the summer.

Clearly shareholders haven't forgiven Netflix, and subscribers haven't forgotten. But Netflix can make it right with the public once again, starting with cleaning up three big messes it recently made.

1. Kill Qwikster dead -- really dead

Netflix rents out enough horror movies to know that its customers have seen that the seemingly dead can come back to life. Halloween's hockey-mask donning Michael Myers always gets back up. Freddy Krueger always finds a new nightmare to inhabit.

Qwikster's death announcement is open to the same kind of ambiguity as the dream-sequence ending of Carrie.

Qwikster lasted all of three weeks. The brand itself is toast. However, Netflix's decision to begin charging for its streaming and DVD plans as two distinct services has been alive and kicking since July. Netflix apologized for moving too fast with the Qwikster fiasco. "There is a difference between moving quickly -- which Netflix has done very well for years -- and moving too fast, which is what we did in this case," CEO Reed Hastings conceded in a statement to the media.

But doesn't "moving too fast" mean that we will eventually wind back up where this Qwikster mess started, revisiting this exact same setup in the future?

Also troubling is that apparently Netflix didn't realize that Qwikster would be a bad idea until it actually began hearing back from irate couch potatoes. "It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," begins last week's announcement.

Netflix has made it pretty clear that it isn't going to split up into two websites. It just needs to let customers know that the decision is cast in stone.

2. Streaming needs to add more movies

Netflix has been inking some pretty big television show deals in recent days, bringing earlier seasons of The Walking Dead and Gossip Girl into its growing digital library.

Where are the movies?

Netflix has yet to find a fitting replacement for its Starz (LSTZA) deal, which won't be renewed when it expires early next year.
Not seeing Starz will hurt. This isn't just some second-tier movie channel. Starz has the streaming rights to a couple of major movie studios. The Starz deal is the reason why some more recent multiplex flicks including Tangled and You, Again are available through Netflix streaming.

There's nothing wrong with earlier seasons of popular television shows, but Netflix needs to convince subscribers that can also get fresh celluloid through its streaming platform.

At the very least, Netflix has to get with the times and begin offering new releases as one-time premium rentals the way that rival Blockbuster does now. Even if it slows the flow of new releases into its unlimited streaming plan, it's too much of a liability right now.

3. Do a better job of explaining the reasons behind this summer's price hike

Nixing Qwikster doesn't solve Netflix's biggest problem. After all, consumers didn't even know about Qwikster until Netflix announced that its subscriber target for the end of September was dropping from 25 million to 24 million.

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Clearly the price increase on members that rent discs and stream online is being seen by many as an insensitive deal breaker.

It doesn't matter that this only applies to half of Netflix's 24 million domestic subscribers. The other 12 million only subscribe to one plan or the other, so they're not seeing a price increase at all.

Netflix was including streaming at no additional cost to DVD customers on unlimited plans for four years before erecting digital tollbooths. It's not going to backtrack on that unpopular move. It would send the wrong message to studios that felt their streams were being devalued as subscriber freebies before. It would also make it harder to revisit this strategy down the road.

The best way to make this right is to let the public know exactly how much it is spending on streaming. Once customers realize that Netflix is spending billions -- yes, billions -- in digital licensing, the more likely they are to understand why streaming can't be offered at no additional cost.

Cementing its customer-centric policies, enhancing its product, and educating the marketplace are the three best ways to clean up this mess.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of and buying puts in Netflix.

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