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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 sigmatau on 9/19/2011 11:35:57 AM , Rating: 2
It's not just that they are trying to purchase more content, but they are also trying to stay afloat.

Their current content will cost them 10x as much next year. How can a company not raise prices when their costs went up so quickly?

I also believe that those content providers are fighting tooth and nail to extort as much as they can from Netflix. Just look at Starz. Netflix offered them almost a half a billion dollars and they still walked. I don't understand exactly how Starz will make up for this loss but they wanted more money.

RE: This just makes me all the more certain...
By mcnabney on 9/19/2011 1:13:21 PM , Rating: 2
Nobody knows what their costs are.

Their licensing costs might have gone up from $0.05 per month to $0.50 per month. That is only one component of their costs of doing business. Verizon paid $10B for more spectrum three years ago and they actually DROPPED their prices shortly after.

By sigmatau on 9/19/2011 3:37:17 PM , Rating: 2
Your example is possible. I will say, though, that having "Verizon" and "dropped their prices" in the same sentence sounds so otherworldly to me since they are by far the most expensive wireless provider by a long shot.

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