Netflix splits business in two, DVD-by-mail renamed Qwikster

By on September 19, 2011, 1:00 PM

Netflix is moving to formally separate its DVD-by-mail rental service from its video streaming business, as announced back in July. The former will now be called Qwikster and should be accessible through a separate website, while the streaming business will continue to be called Netflix. In announcing the move, CEO Reed Hastings apologized for the way it communicated the decision to split the two services, which raised the prices for those who want both.

If you recall, the cost of a subscription that included unlimited online movie streaming plus one DVD-by-mail at a time went from $10 per month to $16 per month -- $8 for each individual service. That 60% increase caused an outrage among customers and ultimately cost the company about 1 million of its subscribers.

Hastings said he "slid into arrogance based upon past success" when he did not adequately explain the reasons behind the planed separation and price hike. He wasn't apologizing over the price increase itself, however, stressing that by splitting up the business they will be better at streaming and better at DVD by mail.

The transition to streaming is hardly unexpected for Netflix but by splitting its business they are forcing customers to think about the two services separately. Members who subscribe to both will have two entries on their credit card statements and must visit two different websites to access the same services previously available at Netflix.com. From a branding perspective, creating a new one for the DVD service it built its business on is also a risky bet.

As far as its streaming business goes, the content offered by Netflix is still far less than the number of DVDs in its catalog, and the competition is getting stronger with the likes of Hulu and Amazon. Hastings said it will add "substantial" streaming content in the next few months, and reassured that there are no more pricing changes planned.




User Comments: 9

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MilwaukeeMike said:

Based on the news article linked on google's news page to CNN Mondy [link]

I?m going to guess the separation was done in order to insulate Quikster from netflix?s impending doom. It appears that google, apple, Microsoft may try to get in the content streaming business and can afford to buy far more content than puny ?lil Netflix. Netflix has had a few of it?s streaming contracts run out and can?t afford to renegotiate. It looks to me that they?re just too small to compete, and we?ll probably be getting our streamed content from one of the big guns soon.

Jibberish18 said:

Well he mentioned in an email to his customers that they'll now be offering video games. If that's true, I'd be interested.

gwailo247, TechSpot Chancellor, said:

It does not seem to make sense to waste the Netflix brand on the portion that is going to fail.

If Netflix really felt that the streaming version was going to die and the DVD by mail version was going to live, they would retain the Netflix name with the more durable product, not start a completely new brand and then kill off the well known brand. Seems counter-intuitive.

SNGX1275 SNGX1275, TS Forces Special, said:

I don't think the streaming portion is going to fail. With them essentially 2 different companies now, Netflix, the streaming one, will be forced to get a better selection. The by mail option is only going to increase in price while streaming could get cheaper. USPS is in rough shape, so there will probably be an increase in mailing costs again.

Vrmithrax Vrmithrax, TechSpot Paladin, said:

milwaukeemike said:

I?m going to guess the separation was done in order to insulate Quikster from netflix?s impending doom.

I think that's a little backwards. The physical media component will slowly atrophy as streaming media becomes more solid and varied. Plus, as was already mentioned, delivery costs of the physical media only stand to increase in the coming years, while bandwidth and streaming costs could conceivably drop.

I think it's a split that will cause short-term confusion, but have long-term benefits. The split of DVD and streaming could get confusing, and has already had a little controversy regarding movie queues and crossover between the 2 delivery platforms. Making a clean split, sending DVD delivery off on its own path, keeps future confusion to a minimum - when you say "Netflix" from that point on, you are talking about streaming, just streaming. Splitting them off as 2 entities also helps with budgeting, bookkeeping, overhead calculations, investment determinations, etc. From a purely business standpoint, it makes obvious sense - and the simplification implied should mean more time/effort/money can be put towards acquiring better streaming content. At least, it had better mean something like that... Or your predictions of impending doom will come true

Guest said:

its called corporate suicide

MilwaukeeMike said:

gwailo247 said:

It does not seem to make sense to waste the Netflix brand on the portion that is going to fail.

If Netflix really felt that the streaming version was going to die and the DVD by mail version was going to live, they would retain the Netflix name with the more durable product, not start a completely new brand and then kill off the well known brand. Seems counter-intuitive.

It does make sense to use the established brand name on the portion you're trying to save. I don't think THEY think it's going to fail... but based on what I read in that CNN story (linked in the first post) it looks pretty grim for them.

It's much different than the USPS...DVD mailing won't slow down for a while... there are many more people with a DVD player willing to pay for Netflix than are willing to pay $50 for broadband + Netflix with a terrible selection.

Streaming IS the future... but netflix has 375 million to play with to buy content contracts. They're competing with Apple, Google, and MS who have billions and billions. I don't see how they're going to pull it off.

Guest said:

Qwikster a well formulated name as the change to ............Quitster will be a simple affair

ikesmasher said:

does this mean that movies i actually want to watch will be on netflix now?

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