Netflix Splits DVD & Streaming Businesses


Something pretty remarkable happened this morning: I, and zillions of other Netflix subscribers, received an email from Netflix CEO Reed Hastings. Now, I'm not exactly pals with the guy, but I'm a fan of his company, as I watch movies that come in little red envelopes and stream on my TV and stuff. The email (also posted as a blog entry, linked above) was a mea culpa from Hastings, apologizing for "arrogance" and a failure to "communicate" about the recent Netflix pricing changes, in which the company began charging separately for DVDs and online streaming (which, in case you're living under an internet rock, didn't go over well). The message from Hastings is actually pretty remarkable for the first bits -- the CEO of a big public company starts his message with the words: "I messed up. I owe everyone an explanation," and actually uses the term "arrogance" in describing his behavior. That's big of him, and I'm impressed by his classiness.

But where it gets weird is when Hastings proceeds to say that Netflix is splitting into two businesses: Netflix for streaming and "Qwikster" for DVDs/Blu-ray/video games through the mail. Say what? Here's a portion of the message:

So we 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. 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: In a few weeks, we will rename our DVD by mail service to "Qwikster". We chose the name Qwikster because it refers to quick delivery. We will keep the name "Netflix" for streaming.

Um. "Qwikster?" Really? Was "Mailflix" not available? Pricing will remain unchanged, but now apparently the two services will operate separately, will charge you separately, and so on. I wonder if the stock will split into two? (At the moment, the stock is up around 2% on the news.)

Here's Hastings himself, in a poorly edited, poorly recorded, and strangely out-of-focus video, explaining the change:

Wow. Am I the only one who found that awkward and painful? (Almost as painful as the quasi-word "Qwikster.") For more subscriber reactions, check out the over 9,000 comments on Hastings's blog post.