How Netflix Corrected Its Mistake Called Qwikster?

Kinnary Nensee Kinnary Nensee
Nov 3, 2022 6 min read
How Netflix Corrected Its Mistake Called Qwikster?

Netflix Inc. was founded by Reed Hastings and Marc Randolph in 1997 in Scotts Valley, California. It is an American subscription streaming service and production company that offers films and television series library through distribution deals. Its own productions are known as Netflix Originals.

The OTT platform is available worldwide apart from Mainland China, Syria, North Korea, and Russia. Netflix is a member of the Motion Picture Association (MPA) and has played a prominent role in independent film distribution. By September 2022, Netflix’s subscriber base was 222 million strong globally. This included 73.3 million in the United States and Canada, 73.0 million in Europe, the Middle East and Africa, 39.6 million in Latin America, and 34.8 million in the Asia-Pacific region.

History and Growth of Netflix
What Was Qwikster? – The Error and the Correction
The Aftermath of the ‘Qwikster’ Debacle

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History and Growth of Netflix

Netflix's Annual Revenue Growth from 2011 to 2021
Netflix's Annual Revenue Growth from 2011 to 2021

Initially, Netflix.com was launched as a DVD rental and sales website in 1998 with 925 titles. During the dot-com bubble of September 2000, amidst losses, Netflix offered to sell to Blockbuster LLC for USD 50 million which was rejected by Blockbuster LLC. The year 2001 saw Netflix experience fast growth but the continued effects of the dot-com bubble burst and the terrorist attack of September 2001 resulted in Netflix holding off its plans for an IPO (Initial Public Offering). The company went public on May 29, 2002, and sold 5.5 million shares. It posted its first profit in 2003 of USD 6.5 million on USD 272 million in revenue. A year later, in 2004, the profit had increased to USD 49 million on USD 500 million in revenue.

Between 2007 and 2012, Netflix transitioned to streaming services starting with recruiting Anthony Wood in April 2007 to build a ‘Netflix Player’ that would allow streaming content to be played directly on a television set. In November 2008, Netflix began offering subscriber rentals on Blu-ray and by 2009, Netflix streams overtook DVD shipments. From here on, Netflix began to grow exponentially by signing deals with Warner Brothers, Universal Pictures, and 20th Century Fox to delay new release rentals 28 days prior to retail in 2008, signing a deal to stream movies of Relativity Media in July 2010 and signing a five-year deal worth approximately USD 1 billion to stream movies from Paramount, Lionsgate and Metro-Goldwyn-Mayer. It was in September 2010 that Netflix first made its foray into the international market by offering streaming service in Canada.

In January 2011, Netflix introduced a Netflix button for certain remote controls for easy access on compatible devices. By January 2012, Netflix began its Europe expansion launching in the United Kingdom and Ireland. It launched in Denmark, Norway, Finland and Sweden in October of the same year. September 2013 saw Netflix launching in the Netherlands and from there on to another 40 countries. A year later, by September 2014, Austria, Belgium, France, Germany, Luxembourg, and Switzerland joined the ever-growing Netflix family. Australia and New Zealand were the next to join in March 2015.

At the January 2016 Consumer’s Electronics Show, Netflix announced its ambitious international expansion plans into 130 additional countries and followed it up by becoming available worldwide except in China, Syria, North Korea, Kosovo and Crimea. Between 2017 and 2020, Netflix branched out and expanded into international productions. By 2021, it began its expansion journey into gaming, Squid Game as well.


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What Was Qwikster? – The Error and the Correction

Qwikster by Netflix
Qwikster by Netflix

Netflix’s subscription plan that offered access to DVD rentals and unlimited on-demand video streaming for USD 10 was extremely popular and well-received among its customer base. It was in the spring of 2011 that Netflix’s Chief Executive Officer, Reed Hastings, first outlined his plan to separate its DVD operations from its streaming service. Irrespective of the objections from Jonathan Friedland, the then-new vice-president of global corporate communications, Hastings held the firm belief that Netflix was a great bargain and any anger from subscribers would fade quickly. Announcements were made to the subscribers that DVDs and streaming would be separated and each would cost USD 7.99 per month or USD 15.98 for both. This was a 60% hike and the changes were slated to be made from September of that year. Netflix renamed their plan to offer DVD by mail service ‘Qwikster’, and planned to run it as a separate business.

This move by Netflix did not go as planned. The increase in price as well as the separation of its DVD service caused Netflix’s stock price to drop by 77% and the video streaming service quickly lost 8,00,000 subscribers – all in a space of just four months. The customers had spoken and expressed their outrage quite vehemently. ‘Qwikster’ was a bad idea from the get-go. Three weeks after its announcement, ‘Qwikster’ was shelved, although the price hike remained.

A customer of Netflix, Willie Williams, reacted to the announcement by posting his comment on Facebook. “Individually your DVD and steaming services do not offer enough to justify their expense. As a bundled service they supplement each other and provide the value that made Netflix wonderful. DVDs allowed you to view newer releases in a fairly timely manner. Streaming allowed for viewing of the older catalogue of movies that come up when you think of it but might not be worth waiting for to arrive in the mail....
By separating these services I fear you are weakening Netflix as a service and subsequently the brand. Together these services made Netflix a success, separated you lack the availability and pricing of your competitors.” 1877 people agreed with his summation.  

The Aftermath of the ‘Qwikster’ Debacle

Reed Hastings had earned the label of being a ‘visionary’ and someone who knew about disrupting businesses. His brainchild ‘Netflix’ had driven out the well-established video rental businesses with the simple premise of an easy-to-use website that delivered DVDs to the customers’ doorstep and entailed no late fees. However, his misstep with ‘Qwikster’ was a massive error that almost caused Netflix its existence. Hastings’ idea, however, was, in fact, sensible. The DVD business was a dying breed, having outlived its existence. He wanted to cause disruption by slowly fading out the DVD business and focus solely on streaming services.

It was an aggressive move, that was far-sighted and did not consider consumer behaviour. It caused Netflix to stumble precariously as it lost a year while trying to recoup from the loss of subscribers and business. However, Netflix streaming services continued its slow and steady upward trajectory with an aggressive price of USD 7.99 per month or USD 15.98 for DVD rentals and streaming service, by 2012 outperforming Apple, Google, HBO, or Amazon in terms of the volume of content available for the said price.


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Conclusion

Netflix emerged from the ‘Qwikster’ blood bath scathed but alive. It was a hard lesson that was learnt brutally and quickly. In the following years, Netflix concentrated on expanding its streaming services and producing and airing original content. Although unsteady for a while, it eventually outgrew its 'Qwikster' debacle to emerge as the market leader that it currently is.

FAQs

What was Netflix Qwikster?

In 2011, Netflix announced that DVDs and streaming would be separated and each would cost USD 7.99 per month or USD 15.98 for both. Netflix renamed their plan to offer DVD by mail service ‘Qwikster’, and planned to run it as a separate business.

When was Qwikster launched?

Netflix DVD by mail, Qwikster was launched in September 2011.

Did Netflix face any losses due to Qwikster?

The increase in price as well as the separation of its DVD service (Qwikster) caused Netflix’s stock price to drop by 77% and the video streaming service quickly lost 8,00,000 subscribers – all in a space of just four months.

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