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Posted at 02:24 PM ET, 09/19/2011

Netflix to split into two businesses

Netflix is set to split into two businesses, one for DVDs and one for streaming video, chief executive Reed Hastings announced in a blog post late Sunday. The change will take place in a few weeks, Hastings wrote.

The company’s DVD business will be renamed Qwikster, and will also include an optional upgrade to include video game rentals.

The decision comes as Netflix and other companies try to get out ahead of consumer demands for streaming video — a business already eyed by Amazon, Apple and Wal-Mart. Netflix’s streaming service has long been seen by consumers as an alternative to cable television, The Washingon Post reported in March. As customers cut the cable cord in favor of the buffet of online video offered by Netflix and others, such as Hulu.com, access to video-on-demand minus the high subscription fee has proven a potent combination. But Netflix has hit a couple of stumbling blocks that have threatened to cloud its rise to the top, particularly as the company’s legacy DVD business becomes less lucrative. In trying to get ahead of the curve, the company may have alienated its customers.

Netflix faced serious backlash after changing its pricing structure in July to split DVDs and streaming. The move lost the company a projected 1 million subscribers. Hastings apologized to all Netflix subscribers for not being clearer about the company’s plans, particularly pricing.

“I messed up. I owe everyone an explanation,” Hastings said.

Customers using Netflix’s DVD site will be able to retain their accounts and queues, but will access the service through qwikster.com.

The streaming business will remain the same, Hastings wrote, adding that the company is expecting to add “substantial” streaming content to the service in the coming months. The company recently ended its contract with the Starz media group, losing about 8 percent of its streaming content.

Hastings promised there would be no further changes to pricing, though he said he did not regret the company's decision to change the structure.

“[Netflix] 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,” he wrote.

Netflix stock, which fell heavily on the news that it had lost subscribers last week, was down slightly in pre-market trading — just under one percent — but up over 2 percent once trading opened.

Hastings and Andy Renditch, head of Netflix’s DVD operations and future CEO of Qwikster, made a short video explaining the changes:

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By  |  02:24 PM ET, 09/19/2011

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