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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.