Last week, Netflix decided to split itself into two parts: a DVD by-mail service and a movie-streaming service. This strategy, according to Mr. Hastings, was mainly based on the company's fear that it might be too slow in the transition from physical media to digital media and and suffer the fate of the recently bankrupted Borders bookstore chain.
In July, Netflix changed its pricing structure so that its by-mail and online offerings were essentially sold separately, each starting at $8 a month. Previously customers paid less for the combination ($10) than the offerings cost separately. This has caused anger among many long-time Netfilx fans who felt betrayed. Meanwhile, Netfilx's stock price plummeted by 19% in two days.
According to the Generic Strategy Model we learned in class, one can assume Netflix's intention to narrow its business scope by separating its two main services. But why such a sudden drastic move which cost them millions of long term subscribers? My guess is that they are experiencing foreseeable financial difficulties at the current price level.
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