Netflix – Requiem. Hulu – Requiem.

For the past couple of years I’ve heralded Netflix above Hulu, primarily for its outstanding collection of old movies, as well as the fact that unlike Hulu, once a series has finished and becomes available on Netflix, it’s the entire series.  No gaps.

Unfortunately, that’s all about to change!

Do you remember the Quickster debacle, where Netflix was going to split it’s websites into two, Netflix for Internet Streaming and Quickster for DVDs and Blu-rays?  They wound up scrapping the idea, but not before Netflix lost nearly a million customers, and their stock dropped from nearly $300 per share to $60 per share in just six months, and at a time when most tech stocks were skyrocket-rebounding.  Meanwhile, they kept the two services separate anyway, at least on the inside, with their offerings split between the two.

Talk about painful – OUCH!  Thank you Netflix CEO Reed Hastings for that incredibly greedy but stupid reduction in service.  Thank God I didn’t own any shares in Netflix!  Sadly, many people did, and they lost their shirts, if not their retirement.

I’d have been happy to pay 50% more for the “other” service, or even 100% more to be able to access it all online.  Waiting for discs via snail mail when I have 20 Mbps is stupid.

Thanks again, Netflix CEO Reed Hastings…

While in school, both as an undergrad studying business, and as a graduate student working towards my MBA, we studied how and why companies fail, primarily because that’s the best way to avoid failing.  Netflix would make a terrific case study, not only as a success story, but also for how badly they screwed up with Quickster.  Hasting’s next trick, however, may very well doom Netflix altogether while other companies are gathering for their own trick:  Leapfrog.

You see, Hastings has been letting various content deals expire.  About 1,800 of them.  This time, Hastings’ dream — our nightmare — is to focus on both current and original programming.  If he were to keep the older movies and TV shows available, that would be terrific!  After all, the cost of both storage space and bandwidth have marched to the tune of Moore’s law for nearly thirty years, doubling for the same price every eighteen months, with no sign of deviating.  Actually, Moore’s law is approximate.  The actual pace has been closer to 42.5% increase per year, or 1.86 times every year and a half.

So why is he cutting anything?  That makes zero sense, especially for old movies.  It’s a cash cow!  With more and more people desiring and moving to on-demand content, cutting that content is like slaughtering the cow.

Stupid.

Second, what we consumers really want is to be able to surf one site with a TV, Blu-ray, computer, or phone, and watch any TV show or movie after it’s arrived on scene.  Whether it’s an hour later, a month later, or five years later, I want to be able to view that program!  Last week’s episode of NCIS?  I’d like to watch that now, please.  A 1986 episode of Magnum P.I.?  Now, please.

Think about this for a minute:  How many cable subscribers are without DVRs these days?  Pretty much none, right?  After all, nearly all cable boxes come with the ability to record programming built into the unit.  The problem is, we consumers still have the laborious task of programming the units, telling it when and what to record, pretty much the same as we did thirty years ago, back in the early 1980s.  About the only thing that’s changed is that it’s on disk, not VCR, so we can record two channels at the same time (five if you have Direct TV’s Genie).

So why in the world is Hastings dragging Netflix back through time?  The beauty of Netflix was on-demand content!  Clearly, Hastings is a better entrepreneur than he is a business manager.  If he were the latter, he’d do one or more of the following:

1.  Buy out Hulu.  Netflix is, after all, many times larger than Hulu.  Besides, Hulu has the contracts to provide recent TV shows and movies.  Furthermore, Netflix has a more ergonomic user interface, so ditch the joke that Hulu uses.  Netflix has far better problem resolution, but because their online interface actually WORKS, they have far fewer problems.

Much of the programming by the two companies is duplicated, so there’s a significant synergistic effect.  The elimination of competition is another.  Hulu has already begun generating its own content.  Consumers are ticked off at both of them as each does what the other can’t or won’t do.  And use Hulu’s style (colors, layout) – that’s the other area where they excel over Netflix.

Besides, you could call the joined company either Netflu or Hulix.  About just “Netflix (formerly Netflix and Hulu).”

2.  Go ahead – put in the commercials for TV shows.  Or charge $8 a month to see them without commercials.  Do both, however, and you’re making profit at the expense of … yourself.  Serious, that idiot plan of Hulu Plus is costing them far more in terms of lost customers than whatever additional profit they were gettings.

3.  Make 100% of the content available online, while keeping high-yield content available to both online and mail customers.  The following pricing structure would serve them well.

Online only:  $12 per month

Mail only:  $8 per month

As I said, both storage and bandwidth are getting bigger, faster, and cheaper by the minute, and they’ll continue to do so.  It’ll be a LONG time (well over a decade) before consumers step up from Blu-ray (HD 1080p) TVs to the brand new quad units in any appreciable numbers.  Yet by 2015 both storage and bandwidth for HD content will cost Netflix just half of what it costs today.

4.  Invest in better problem resolution tools.  Netflix already has a better interface, but more time should be put into better guides than paying people to solve the same problems over and over and over and over…  Once posted, a well-written guide costs just about zip.  Improve the menu and organization of the help files, and you’ll eliminate even more help center calls.

Bottom line, this merger would be a match made in heaven, not only for both companies, but for both sets of customers, as well.  Everyone wins!