11.33 Europe/London, September 19, 2011 By Robert Briel
US online video and DVD delivery service Netflix is splitting into two separate entities, writes Reed Hastings, co-founder and CEO, Netflix, in his blog. The announcement comes amid much uproar about recent price-hikes.
“We realised 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. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.”
The split will happen during the next few weeks. Hastings broke the news in his blog entry, in which he apologised for the way he announced a recent price hike. “I messed up. I owe everyone an explanation. It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes. That was certainly not our intent, and I offer my sincere apology.”
In July the company announced that it was doing away with its popular $9.99 DVD-plus-streaming plan in favour of two separate plans priced at $7.99 each. Netflix said it’s poised to lose 600,000 subscribers in the current quarter, rather than adding an expected 400,000.
For the quarter, the company now expects to finish with 21.8 million streaming subscribers, down from a previously expected 22 million, and 14.2 million DVD subscribers, down from the old forecast of 15 million.
Streaming only subs are now expected to be 9.8 million, down from 10 million, with DVD only down to 2.2 million, from 3 million. The company still sees 12 million subscribers who use both services.
Another blow to Netflix came when Starz, which provides Netflix with over a thousand streaming movies from the likes of Disney and Sony, announced that it would not renew its contract with Netflix when it expires in February 2012
It was not the first time Hastings had to apologise for his communicative skilles. About a year ago he wrote in his blog: “My Big American Foot is in my mouth. Yesterday, I made an awkward joke with a reporter in Toronto about Americans (like me) being self-absorbed relative to Netflix pricing in Canada. I was wrong to have made the joke, and I do not believe that one of the most philanthropically-minded nations in the world (America) is self-absorbed or full of self-absorbed people. The pricing Netflix is offering in Canada, $7.99 per month, does not include any DVD-by-mail option, and that is why it is cheaper than our $8.99 USA plan which has both DVD-by-mail and streaming in one plan.”
More about Netflix’ developments in a company video with Hastings and Netflix’ Andy Rendich, who becomes CEO of the new Qwikster