Organizational Changes by Netflix Explained by Evolutionary Logic

NETFLIX

Organizational changes by Netflix explained by evolutionary logic

Netflix: Organizational changes

The media climate is changing rapidly, particularly the ways in which people consume media. Netflix is attempting to change with the times. One of its most recent alterations to its policy has been its separation into two business units, with two distinct components. Its "physical disc mailings from Internet video, DVD-only subscriptions start at $7.99 per month, the same price as a streaming-only plan. But a monthly plan that combines physical DVDs with Web streaming costs almost $16 -- a 60% price increase" (Milian 2011). Customers were outraged at the prospect of having to choose between the two types of media or seeing their fees doubled.

More and more consumers are using the online format to watch movies and TV. However, "streaming program's convenience and ubiquity is sometimes overshadowed by its dearth of quality movies available for streaming, relative to those contained in Netflix's extensive DVD catalog" (Milian 2011). Netflix's division of its services into two business units "was seen as a way of forcing consumers to buy the more expensive plan, given that Netflix's most die-hard subscribers usually order off of both of the streaming and DVD menus for different purposes (Milian 2011). It justified the price increase due to "growing bandwidth and infrastructure costs" (Milian 2011).

However, consumers have a wide variety of alternative media to consume if they are not willing to pay the extra fees. YouTube and Hulu offer television programs and movies for free. Granted, these websites do not always offer every hot new film or TV show. But neither does the Netflix collection of streaming content. Rather than an evolutionary change responding to the needs of changing circumstances, Netflix's demand that consumers pay for streaming content that is often inferior as an additional service discounts the fact that so many consumers use the Internet as a 'free' method of watching movies and television programs already. "I realize Netflix cannot stream what the studios do not allow, but this is a disparity that really should be acknowledged in the price scheme," commented one subscriber (Milian 2011).

While the anger of the users was predictable, Netflix viewed its decision as superior long-term planning. "Splitting off streaming from DVD delivery, Netflix can react more flexibly to the emerging streaming market while maintaining its hold on the mail-delivery market. Keeping them both under one umbrella would have made it harder to respond rapidly to changes in customer demands" (Gross 2011). It may be necessary to further raise rates upon DVD purchases, for example, given the additional expenses of posting by mail or rate increases for streaming may be necessary based upon bandwidth costs. Given the future is likely to favor streaming delivery, once more high-quality films are made available, splitting off this business segment allows the company to emphasize this aspect of Netflix. Of course, this is assuming that more studios make their films available for streaming -- some still do not.