Archive for Tuesday, September 20, 2011

Netflix separates DVD, streaming businesses

September 20, 2011


On the street

What service do you use when you want to rent a movie?

It’s been a year-and-a-half since I’ve rented a movie. Coincidentally I’m celebrating my year-and-a-half anniversary.

More responses

— Netflix Inc. is separating its DVD-by-mail business from the online movie streaming service it sees as the future of entertainment consumption.

In announcing the changes, CEO Reed Hastings also apologized to subscribers for the way the company communicated its decision to split the two services, which raised prices for those who want both.

The mail order plan will be renamed “Qwikster.” In a few weeks, Netflix subscribers who want to get DVDs by mail will go to a separate website to access Qwikster. The streaming business will continue to be called Netflix.

Members who subscribe to both services will have two entries on their credit card statements. Instead of Netflix, the distinctive red envelopes that end up in customers’ mailboxes will now say Qwikster.

It’s a risky gamble. The amount of streaming content the company offers is still far less than the number of DVDs in its catalog. And competition, from Hulu, Amazon, Coinstar’s Redbox kiosks and other services, is growing. Netflix could even alienate customers further by asking them to now deal with two separate websites and accounts instead of just one.

Hastings apologized for the way the company communicated the price changes, but not for the price hike itself.

“I messed up,” the CEO wrote in a blog post Sunday night that was also emailed to subscribers.

The changes come as the company faces increasing scrutiny from customers and shareholders over the decision announced in July to separate its mail order and Internet streaming services into two separate plans. The change raised the prices for users who want both services, by as much as 60 percent for some.

“Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail,” Hastings wrote.

Last week, Netflix lowered its U.S. subscriber forecast for the third quarter and the former stock market darling’s shares took a beating as a result.

Hastings said he “slid into arrogance based upon past success” when he did not adequately explain the reasons behind the plan separation and effective price hike. He said the reason is that instant streaming and DVD-by-mail are becoming “two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”


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