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Posted at 10:21 AM ET, 10/10/2011

Netflix abandons separate DVD, online plans

Netflix Inc.'s streaming service is displayed on a computer monitor along with Netflix envelopes in New York, on Sept. 15, 2011. (Jin Lee - Bloomberg)
First Netflix said it was sorry. Now the video giant is reversing its unpopular decision to separate its DVD business from its online streaming business, in one of the most striking recent corporate missteps.

In a blog post, CEO Reed Hastings said Netflix was abandoning its plans to create a separate DVD service called Qwikster. Customers would no longer have to subscribe to two separate services if they wanted mail-order DVDs and streaming videos.

“It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs,” Hastings wrote.

“This means no change: one website, one account, one password… in other words, no Qwikster,” he wrote.

The company’s stock immediately jumped in response to the announcement. By midmorning trade, Netflix shares were up 7 percent to $125.50.

Netflix, once the darling of the stock market and the biggest threat to cable companies, has suffered big subscriber losses and a retreat from stock investors after two wildly unpopular decisions.

Last July, it decided to increase prices by 60 percent for subscribers to both its DVD rental and online streaming services. Then, last month, it announced it would separate the two businesses — calling the DVD rental service Qwikster — which would require consumers to hold two separate subscriptions and log on to two different Web sites.

The decision made the Silicon Valley company a target of anger and ridicule. Late night comedians made fun of the company’s decision. Customers started Facebook pages aimed at encouraging users to quit the service.

The stock lost about half its value and fell to a one-year low of $107. Hastings warned investors last month that the company — which has 24 million subscribers — would lose 1 million users due to the changes.

The decision, however, poses bigger questions for Netflix as it tries to transition from a DVD mail-order service into an online streaming global service. Hastings has long predicted streaming video will supplant physical video rentals. It is also costly to maintain their operations for mail delivery.

But analysts say Hastings’ move was ahead of consumer demands.

“In a market driven wave of opposition the customers won and Netflix relinquished its plan to split the business in two and raise prices,” said independent tech analyst Jeff Kagan. “Basically things are getting back to normal. This skirmish has cost Netflix customers and revenues and stock price. It was very costly.”


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By  |  10:21 AM ET, 10/10/2011

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