Analysts: Netflix split is good for business; bad for customers

September 19, 2011

Netflix is splitting into two companies — one for streaming shows over the Internet and one for renting DVDs — in a move that its executives say will be good for business but analysts predict will be frustrating for customers.

In a few weeks, those interested in both services will have to log on and search for movies on two separate Web sites, the company said. They’ll also see two bills.

Netflix chief executive Reed Hastings explained that the company’s two businesses are becoming “quite different,” with different costs and marketing needs. He said the new DVD business will be named Qwikster.

“We need to let each grow and operate independently,” he said in a blog post late Sunday night.

But analysts say the decision will create an unnecessary inconvenience for customers — and is the latest misstep by the once high-flying company.

“Netflix used to have a clear differentiation around simplicity,” said Adam Hanft, who runs a marketing company. “Now they’ve made it much more complicated.”

Others speculated that Netflix is splitting off its expensive DVD business because the firm knows that business will die off.

“I understand how they want to transition away from DVDs,” HDNet founder Mark Cuban, an early pioneer of online streaming and now owner of the Dallas Mavericks, wrote in an e-mail reply. “That makes perfect sense, but the new name is going to create more than a little confusion.”

On Monday, Netflix’s stock dropped $11.44, about 7.4 percent.

Netflix is among several corporate titans, including Amazon, Apple and Wal-Mart, that are rushing to dominate the video streaming business. Some customers have begun cutting the cable cord — and the high bills that come with it — in favor of online services.

As more move into online streaming, Netflix has faced backlash after significantly raising the price to subscribe to its DVD and streaming services in July. After the hike, Netflix said it may lose about 1 million of its 25 million customers. Its stock has since lost more than half its value.

Hastings apologized Sunday to subscribers for not being clear about pricing plans.

“I messed up,” Hastings wrote in the blog post, promising there would be no further pricing changes. He added that Qwikster will include an optional upgrade to include video game rentals.

The comments appeared to do little to soothe customer frustration. Thousands left comments on Netflix’s Web site, with more than a few saying they felt betrayed by the company’s latest moves.

Other bloggers and analysts mocked Netflix for launching Qwikster with a Web site that only said: “Launching soon.”

The blog TechCrunch noted that Netflix appeared to not realize that it did not own the name “Qwikster” on Twitter. That account is registered to a user with a profile picture of Elmo smoking and a Twitter feed littered with foul language.

Hayley Tsukayama covers consumer technology for The Washington Post.
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