How Netflix went wrong: Qwikster was good for company, not the customer.

Netflix pulled the plug Monday on its DVD rental spin-off division Qwikster. Creation of the division was supposed to help Netflix prepare for the cyberfuture, but the move just angered its customers.

Wilfredo Lee/AP
Netflix's CEO says it's abandoning its widely panned decision to separate its DVD-by-mail and Internet streaming accounts.

As a red-faced Netflix, the media delivery giant, reverses course and kills off its newly formed Qwikster DVD division, many observers are scratching their heads over how such a successful upstart company could make such a gaffe.

Netflix spun off Qwikster to handle what was clearly seen as a business on its last legs – the model of delivering physical DVDs in that familiar red-and-white packaging to people’s mailboxes.

The thinking behind the now defunct move? As total digital delivery of all entertainment loomed ever closer – and the US Postal Service rumbled about changes in its services and fees – Netflix was clearly banking on its cyberfuture.

The company’s mistake, says Fordham University Professor Paul Levinson, author of “New New Media,” was in making the best move for the company – not the consumer. “Splitting the two services may have been in the best interest of the company,” he says, “but it is less simple for the customer.”

Beyond that, he says the move to create two companies with separate log-ins and fees was surprisingly “ham-handed following, as it did right, on the heels of a price hike in July.

“My advice at this point is for Netflix to consider rolling back those price hikes as well,” he says, adding, “in this day of such economic hardship, customers are angry at businesses trying to get more money for the same service.”

In defending the price hikes in his announcement Monday, Netflix CEO Reed Hastings said, “the last couple of weeks alone, we’ve added over 3,500 TV episodes from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel, TLC, SyFy, A&E, History, and PBS.”

Social media was alive with impassioned critique of Netflix in the wake of these two changes – the price hike and the creation of Qwikster, says Robert Thompson, founder of the Bleier Center of Television and Popular Culture at Syracuse University in New York.

“Most of the students I heard talking about Netflix said they were going to drop it rather than pay more or go to two web sites,” he says with a laugh. The question of how Netflix could have stumbled so badly and so quickly is a cautionary tale in these digital times, he notes.

Clearly, the two business moves were in the firm’s best interest. But, somehow, the company seemed to have the notion that customers would happily support what was in the company’s best interest – without any pushback. “It’s a bit Shakespearean,” Professor Thompson says, explaining that leaders in any realm often ride the acclaim of their followers into power.

But, once there, “they forget who put them there,” he says. “They start thinking that their constituency cares about their self-preservation,” he notes, adding, “in this swiftly changing digital world where one day you can be up and the next day you are something to wrap yesterday’s fish in, nobody can afford to take their consumers for granted.”

This is not to suggest that such entitlement on the part of consumers is necessarily a good thing. “But just look at MySpace and Blockbuster,” he says. Their moment in the cultural zeitgeist was temporary, and now it’s over. Time will tell, but that could be the Netflix story as well, he adds.

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