Last week, Netflix announced that it would be spinning off its physical disc rental business and rebranding it as “Qwikster.” A lot of pundits seem to think this is totally crazy, and anti-consumer. Reed Hastings, Netflix CEO, has said multiple times that this move is forward-thinking, and will position the company better in the future. My suspicion (and I’m surprised I haven’t heard this elsewhere) is that this will indeed purposely kill their disc rental business, but it will also bolster their streaming offering pretty drastically.
Netflix has become a behemoth of a service. Blockbuster, their closest competitor in the disc rental space, was driven to Chapter 11, and Redbox isn’t really competing much at all with their kiosks. Other than those two, can anyone even name another disc rental chain? Netflix completely dominates physical rentals, which means that the majority of rental licenses paid to film studios comes from Netflix. In a nutshell, the rental business belongs to Netflix.
I suspect many of Quikster’s subscribers will wind up there just because they were Netflix subscribers. If that service fails, I doubt many will go out and seek a new disc rental option. They’ll learn to embrace streaming instead. This leaves the lion’s share of rental customers leaving physical discs behind altogether.
Then, what do content owners do? If the whole disc rental market tanks completely, there are vast swaths of content that no one can rent. Studios will have to make more of their catalogues available through steaming in order to make any money on those properties at all.
I think Qwikster is a calculated move not just to kill Netflix’s disc rental business, but to kill disc rentals entirely. Reed Hastings is making the bet that without the old-time distraction of physical disc rentals, the studios will be forced to focus on new streaming licenses, and Netflix will be ready and waiting to negotiate them. And that’s great news for consumers.