Netflix Separates DVD, Streaming Services

Netflix CEO Reed Hastings announced last night that the popular video rental service will now split into two separate companies, one for online video streaming and one for DVD by mail. The announcement comes two months after Netflix said it would begin charging separately for the two services and raise existing prices by 60%, a move that infuriated many customers.

“I messed up. I owe everyone an explanation,” Hastings said on The Netflix Blog Sunday night. “We realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.”

In a few weeks, Netflix will rename the DVD by mail service Qwikster (a reference to quick delivery), while the company’s video streaming service will keep the name Netflix. Each service will have its own website, Qwikster.com for DVD by mail and Netflix.com for video stream, and subscribers will be billed separately for the two services. Hastings promises there will be no additional pricing changes, though Qwikster will soon offer video games and Netflix will soon see a "substantial" amount of new streaming content.

As expected, not everyone is pleased with Netflix’s new announcement. ZDNet’s Andrew Nusca criticizes the move, accusing the company of putting business first, customers second.

“The transition to streaming is hardly unexpected, but somehow Netflix manages to complicate an otherwise seamless customer experience in its move to separate potential from profitability,” Nusca writes. “Two services does no one but Netflix any good. From a branding perspective, creating a new one to send off into the sunset is confusing. Two statements on one’s credit card is perplexing. And two websites to manage a single mental queue is unnerving.”

However, Netflix has already anticipated this critique.

“Some members will likely feel that we shouldn’t split the businesses, and that we shouldn’t rename our DVD by mail service,” Hastings writes on the blog. “Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is possible we are moving too fast – it is hard to say.”

What do you think of Netflix’s announcement? I'm a Netflix subscriber and I personally don't care about having to use two separate sites or receiving two separate charges.


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