backtop


Print 79 comment(s) - last by Hieyeck.. on Sep 21 at 8:22 AM

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).



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

By Brandon Hill (blog) on 9/19/2011 8:53:43 AM , Rating: 5
Greedy?

The initial licensing deal that Netflix signed with Starz cost $30 million. Netflix offered them $300 million and Starz STILL walked.

Costs are skyrocketing.


RE: This just makes me all the more certain...
By Solandri on 9/19/2011 9:17:11 AM , Rating: 2
I think this may be a strategy to counter that. As Netflix was originally structured, they could subsidize streaming costs with DVD rental revenue. Clearly they don't think Starz's package was worth more than $300 million given how many of their customers utilized streaming. Clearly Starz thinks it is worth more.

By separating the two divisions of the company, they make it clear to the studios that any negotiated streaming licensing fee has to be less than the streaming revenue minus costs. They cannot subsidize the streaming service with revenue from the DVD service.


RE: This just makes me all the more certain...
By FITCamaro on 9/19/11, Rating: -1
RE: This just makes me all the more certain...
By mcnabney on 9/19/2011 1:20:50 PM , Rating: 3
But the point is incorrect. Netflix has said AGAIN and AGAIN that they are moving to streaming because the margins are much, much, much better due to the high cost of mailing DVDs. If anything, streaming has been supporting the DVD business.

All I know is that the movies I want to watch are NOT available on streaming, but are on DVD. So I guess I will be a Kwikster customer going forward.

What Netflix doesn't understand is that ANYBODY can stream. They currently hold a dominant position because they can provide both a vast catalog of disks as well as streaming if you have to watch something now (or are catching-up on old TV). By breaking the businesses in two they are doubling-down on stupid. Expect Amazon, Hulu, or Google to steal their streaming crown in 2012.


RE: This just makes me all the more certain...
By Solandri on 9/19/2011 3:06:59 PM , Rating: 3
quote:
Netflix has said AGAIN and AGAIN that they are moving to streaming because the margins are much, much, much better due to the high cost of mailing DVDs. If anything, streaming has been supporting the DVD business.

You're assuming there are as many streaming customers as there are DVD customers. The margins may be better on streaming, but the vast majority of their revenue can still be due to DVD rentals if there are a lot more DVD customers than streaming customers.

The hearsay I've read says that of Netflix's nearly 22 million customers, about 21 million of them request DVDs, but fewer than 2 million of them stream.


RE: This just makes me all the more certain...
By SRHelicity on 9/19/2011 5:02:41 PM , Rating: 2
Netflix just revised downward their subscriber projections. The current estimated breakdown as is followed:

DVD-only: 2.2 million
DVD + Streaming: 12 million
Streaming-only: 9.8 million

The number of streaming-only subscribers is several times larger than that of DVD-only subscribers. In other words, ~21.8 million subscribers stream through Netflix, and "only" ~14.2 million people receive a DVD through Netflix.

http://techcrunch.com/2011/09/15/netflix-releases-...


By Solandri on 9/19/2011 6:49:30 PM , Rating: 2
I stand corrected then. Thanks for the info.


RE: This just makes me all the more certain...
By Reclaimer77 on 9/19/11, Rating: 0
By mcnabney on 9/19/2011 2:13:19 PM , Rating: 2
Please provide documentation of actual streaming costs.

All we know is that they had a deal for all of Starz content for a miniscule $30M for three years. Even if it costs $1B/year for ALL content that is easily paid for since streaming-only user fees earn them over $2B.


"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki