Will Qwikster, a Netflix spinoff DVD-by-mail service, damage brand?


The exterior of Netflix headquarters is shown in Los Gatos, Calif. (Paul Sakuma/AP)
September 19, 2011

Netflix announced late Sunday that it is splitting into two services, a DVD-by-mail service called Qwikster and a streaming-only business that will keep the Netflix brand. As Anthony Palazzo reported :

Netflix Inc. plans to separate its DVD-by-mail service from movie streaming, a move the company said will give both businesses a better chance to grow.

The DVD-only service will be called Qwikster and will add video games to the current movies and television shows it offers, Reed Hastings, chief executive of the Los Gatos, Calif.-based Netflix said Sunday in a blog post. The streaming service will keep the Netflix name.

The move grew out of the realization that the businesses had different cost structures and marketing needs, Hastings said in the post. Separating them will allow each to grow and operate independently, he said.

“It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: We will rename our DVD by mail service ‘Qwikster,’ ” Hastings said.

Andy Rendich, who has led the DVD operation for four years, will be Qwikster’s CEO. The by-mail and streaming products will have separate Web sites and customers will receive unique credit card charges from each.

Qwikster will start “in a few weeks,” and will offer video games for Nintendo Wii, Sony PlayStation 3 and Microsoft Xbox 360 consoles, Hastings said.

The split may allow Netflix to better align the two divisions to deliver good content, but for customers, the extra work of maintaining two memberships may turn some off. As Hayley Tsukayama explained:

Netflix is splitting into two companies — one for streaming and one for DVD rentals — in a few weeks. While the services and prices won’t change, the company’s move could have a side effect that’s likely to annoy its customers: a bit of extra work.

One drawback of the split: “The Qwikster.com and Netflix.com Web sites will not be integrated,” said Netflix chief executive Reed Hastings in a company blog post. “So if you subscribe to both services, and if you need to change your credit card or e-mail address, you would need to do it in two places.”

Hasting also said in his blog post that searches will not work across both sites. If a user can’t find a movie on Netflix, he or she will have to do another search for the film on Qwikster.

“We think the separate websites (a link away from each other) will enable us to improve both faster than if they were single websites,” Hastings wrote in response to comments from users, adding that the streaming and DVD queues are already “a click away” on the current site.

After the pricing backlash Netflix endured earlier in the year, many customers and analysts continued to criticize the firm. Hayley Tsukayama asked what Netflix did right and wrong in splitting.

Netflix can’t seem to do anything right, if you ask its customers. Meanwhile, tech analysts are heaping praise on the company, though the market isn’t as sure — Netflix stock is bouncing up and down on the company’s decision to split its DVD and streaming businesses into two separate companies. Right now, it appears that Netflix may have done the right thing for its business, but in the wrong way.

What it did right: Streaming is the future of video. There are few people arguing against that idea; it’s almost impossible when you look at the success of, yes, Netflix or Hulu, Amazon Prime, Apple or Vudu, just to name a few. Netflix said it would lose 1 million customers in its guidance last week, but a closer look shows that it expects to lose 800,000 DVD customers and only 200,000 streaming customers, tech writer Dan Frommer pointed out. DVD-by-mail is an expensive business, and the audience for it is shrinking, making it smart to spin off that part of the business and leave it to whatever future it may have.

What it did wrong: With customers, however, Netflix hasn’t won any points. Hastings’s apology for not communicating with users about the price changes has made his customers even more upset, since he isn’t apologizing for changing prices but simply for not telling users about it more clearly. That set off a lot of backlash from consumers who felt it was a disingenuous apology. The company also, perhaps, took the split too far by not offering users the chance to have their recommendations, queue management and billing come from the same company.

More technology coverage from The Washington Post

Netflix stock tanks after cutting subscriber outlook

Netflix global expansion includes bigger D.C. lobby office

Look out GameFly, Qwikster ships video games, too

Comments
Show Comments
Most Read Business