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Netflix splits its streaming, DVD businesses; Qwikster to add video game rentals

It's been a rough few months for Netflix. The company saw massive backlash when it decided to raise the prices of streaming + DVD plans. Netflix was once again in the hot seat when Starz decided not to renew its distribution deal, which means that streaming customers will lose out on Disney and Sony content when the current deal expires in February 2012.

Netflix knows that it has a PR nightmare on its hands, and CEO Reed Hasting apologized for the debacle in a blog post Sunday night:

I messed up. I owe everyone an explanation.

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. That was certainly not our intent, and I offer my sincere apology...

I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly. 

Now, Netflix is making yet another change that is sure to ruffle a few feathers. Hastings announced this that Netflix will spin-off its DVD-only business into a new company called Qwikster

"So we realized that 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," said Hastings. "We chose the name Qwikster because it refers to quick delivery."

Qwikster will be headed by current Netflix DVD guru Andy Rendich.

The streaming service will still be called Netflix and both will be completely independent. That means that you will need a separate account for each, you will be billed separately for each, and reviews written for one Netflix content will not show up on Qwikster (and vice-versa). Likewise, Netflix pricing will remain the same at $7.99 for its streaming-only plan. Qwikster will retain the current DVD-only pricing of $8.99 for a single DVD out at a time, $11.99 for two DVDs and so forth.

This change will allow both companies to focus on their strengths, but it makes management on the customer's end even more complex. 

"Some members will likely feel that we shouldn’t split the businesses, and that we shouldn’t rename our DVD by mail service," Hastings added. "Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail."

If there is one positive to come out of the deal, Qwikster will now have the option to rent Wii, PS3, and Xbox 360 games for an additional fee (similar to the way Blu-ray movies are handled currently).

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RE: This just makes me all the more certain...
By Da W on 9/19/2011 8:46:46 AM , Rating: 2
Yeah, short of piracy, Netflix is the cheapest way to watch movies.

From a company perspective, it makes perfect sence since the streaming aspect has MUCH HIGHER margin than the DVD by mail aspect. They want to get rid of it and keep the high profit part. Buisness is buisness. And, i'm still waiting for somebody ot offer a better alternative.

RE: This just makes me all the more certain...
By mcnabney on 9/19/2011 1:07:56 PM , Rating: 2
So which is it.
Has the expense of streaming increased so much that rates had to rise 60%? or are margins higher with streaming? One of those statements is false.

RE: This just makes me all the more certain...
By Labotomizer on 9/20/2011 10:56:31 AM , Rating: 2
It doesn't change the fact that, for the money, Netflix is by far the best deal out there. I didn't use the DVD service anyway, I'd rather go to Redbox and pick up a Bluray if the movie isn't there to stream. For $8/month I get unlimited streaming of every movie in their library. That is an insanely good deal considering the alternatives. I could pay $5/movie and get 1.5 movies through On-Demand. I could pay $1/movie and see 8 movies total through Redbox, as long as I actually got it back the next day (which rarely happens). Every service besides Netflix wants to charge on a per movie basis. Considering the use I get around my house from it, especially for my daughter who just discovered Ren and Stimpy, it is easily the best $8/month I spend. That's the price of a combo and most fast food places these days!

I don't understand the backlash. Netflix has gotten big and the content providers are trying to squeeze more money out of them. Starz wanted them to charge on a per movie basis, or additional money just for their service, and they refused. They offered them $300 million/year. Where do you think that money comes from. DVD delivery is more expensive for the delivery of the movie, cheaper for the licensing. Content providers are still incredibly anal about the idea of streaming a movie over the internet and because of that Netflix pays more per movie to offer it to the providers. Sure, delivery costs go down, but overall it's likely break even. Especially for high volume users like myself.

By thurston2 on 9/20/2011 11:23:18 PM , Rating: 2
For $8/month I get unlimited streaming of every movie in their library.

You can't stream every movie in their library.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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