September 19, 2011
Netflix Spins Off DVD Service, Renames It Qwikster
Netflix CEO Reed Hastings announced Sunday evening on his company blog that Netflix will continue to operate as a streaming-only media service, while the company's new spinoff "Qwikster" will take on the DVD-only service. The new service will not only continue to offer movies by mail, but will start offering video games as well
Andy Rendich, head of Netflix´s DVD-by-mail service for the last four years, is set to become the CEO of the company´s new DVD service, Qwikster.
For the launch, all customer reviews and ratings for Netflix will be transported to Qwikster, but after that, people will have to rate and search for movies on each site separately, he wrote.
Hastings said that the new site should be up and ready within a few weeks. He said that people already subscribed to Netflix´s DVD-by-mail service will not need to do anything when the new site launches as they will be automatically registered for Qwikster.
Those omnipresent red envelopes, which have been part of the company for 12 years +, will remain, but with the new Qwikster logo, rather than the current Netflix. Hastings admitted it would be hard to see Netflix gone from those little red envelopes, but said he thought the new name would grow on him over time, as he imagined it would be the same for many of his customers.
While some customers would not like to see the company split in two, Hastings said in his blog that the split will actually help both areas of the company grow better.
Those who try to log onto Qwikster now will only see a landing page that says the business is “launching soon.” No timeline was set for when the site would be active, but in his blog, Hastings said within a few weeks.
The new change comes shortly after Netflix hiked up its subscription prices by as much as 60 percent. The price hike proved to be a business-crushing move as the company lost a chunk of its subscriber base and their stock plunged.
Netflix also suffered another blow when Starz Entertainment opted to not renew its contract to allow streaming rights of its massive library to Netflix. The Starz lineup of movies and television shows will be removed in March 2012.
Hastings offered an apology in his blog, not for the price hike but for not clearly communicating on why the changes were being made in the first place.
“It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes,” Hastings wrote. “I messed up. I owe everyone an explanation.”
Hastings had feared for the past five years that Netflix would not be able to adapt into new areas, such as video streaming.
But moving on to incorporate video gaming into its new Qwikster business, the company is moving ahead and seemingly in the right direction. Qwikster will include console game rentals for Microsoft´s Xbox 360, Nintendo´s Wii and Sony´s PlayStation 3. The video game rentals will be available for an additional monthly fee.
Netflix´s move to add video games will put pressure on GameFly, which operates a game-by-mail service that has become very popular.
“Members have been asking for video games for many years, and now that DVD by mail has its own team, we are finally getting it done,” Hastings said in his blog.
Some customers wondered whether Netflix might be setting up the DVD business to be sold at a later date, and one asked in a comment on the blog how long it would be until that happens. “A long time,” Hastings replied. “We know the business better than anyone else.”
Hastings said the company is going back on their price changes from earlier this summer and has said that customers do not need to worry about another price increase. He assured that the price hike is over. “There are no pricing changes (we're done with that!).”
But there is still a downside -- that customers will have to subscribe to two separate services if they want both DVD-by-mail and streaming services. While there will be two entries on their credit card statements -- one for Netflix and one for Qwikster -- the total will be the same as the current charges, unless they want to add in the video game service for an additional fee.
Hastings closed his blog with another apology along with a commitment to “work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.”
Whether customers who have already left will come back is yet to be seen.
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