A few months ago, Netflix dropped a bomb on its loyal customers informing them that they have to pay separately for both the DVD-by-mail and online streaming services. The payment separation drove the price up by 60 percent — a very unpopular move.
The price increase was unfavorable due to its abruptness, and Netflix Co-Founder and CEO Reed Hastings regretted how the situation was handled.
Hastings wrote in a blog post Sunday night, “In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication… I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.”
While Hastings’ apology was unexpected, it wasn’t the most shocking news in his post. Hastings broke the news that Netflix is splitting into two independent businesses, one to manage just online streaming and the other to manage just DVD-by-mail. The online streaming service will maintain the Netflix name and logo, however the DVD-by-mail service will rebrand itself as Qwikster. Hasting said the name was chosen because it refers to its “quick delivery.”
The bold split of the company sounds risky. Netflix has built its business off DVD-by-mail for years, and the service offers more movie and television titles compared to the online streaming. But by splitting the company into two teams, each service will get more time and focus. The split is already yielding positive results, as a highly anticipated addition to the Qwikster library will be video games. On the Netflix side, hopefully more focus by their team will help bring in more titles to online streaming.
One problem with the separation is that there is no integration between websites. Users will have to log on to the respected websites, Qwikster or Netflix, to subscribe for the services. Ratings and reviews will not be shared between the websites and there will be two separate credit card charges on accounts, however no price changes yet. It will be up to the user to find out which titles are available for online streaming or DVD-by-mail only, causing slight frustration when having to switch between the different domains.
In the short term, the changes Netflix has made this past year have hurt the company. Frustrated customers have boycotted the site for the price increases and the splitting of the company may discourage some from wanting to jump to Qwikster. In the long term, however, these changes may have saved the company from future failures.
The DVD-by-mail feature was revolutionary for it’s time and is still going strong. However, many realize online streaming is the future. It’s inevitable for DVDs to eventually become as unnecessary as VHS, especially when every movie and television show is available instantly. Netflix is making a preemptive strike as to not follow in the steps of AOL, whose dialup service was trumped by DSL. Or even Borders bookstores for example, which no longer exist because of the Apple’s iPad and Amazon’s Kindle.
By focusing on online streaming, Netflix has ensured they’ll be around for the long haul. Qwikster on the other hand is doomed from the start, if the lame name isn’t a killer then the progression of technology will be.
Even though Netflix has shaken things up lately, the moves they’ve made have been carefully calculated. In the past couple of months, Neflix has ensured both its financial stability and longevity. How Qwikster will fair is another story.