Netflix will rename it’s DVD service – Qwikster.
Netflix Inc will be separating its movie streaming business from its DVD-by-mail service, which it is renaming Qwikster. Netflix is trying to recover from a customer backlash over its subscription fee increase.
Chief Executive Officer Reed Hastings made the announcement in a blog post a week after the company confirmed that it was adding fewer subscribers than forecast due to the 60 percent increase for its joint streaming and DVD rental service.
The uproar has pushed shares of the company down nearly 50 percent since it announced the price increase on July 12.
Shares of Netflix were up 2.3 percent at $158.78 in morning trading.
“I messed up,” Hastings wrote in the blog post. “I owe everyone an explanation.”
The streaming business will retain the Netflix brand.
Hastings said streaming and DVD by mail were beginning to operate independently, with very different cost structures. They also offer different benefits that needed to be marketed differently, he added.
There will be no pricing changes, Hastings said, and subscribers to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix.
The two services will have separate websites and no longer integrate customer use or preferences data for streaming and DVDs.
“The share rise is mainly a bounceback from the recent declines, and today’s news doesn’t change much because Reed had talked about separating the businesses in the past,” said Gabelli & Co analyst Brett Harriss.
Netflix has been under pressure from Hollywood studios and cable programmers to pay much more for content. Analysts have said it would start to lose more shows for its streaming service after failing to reach a new agreement with Liberty Media’s Starz.
But Hastings said new content would be coming soon.
“The additional streaming content we have coming in the next few months is substantial, and we are always working to improve our service further,” he said.
Even as it seeks out more content for its streaming service, Netflix faces increasing Web video competition from the likes of Amazon.com, Google Inc and Apple Inc.
JPMorgan analyst Doug Anmuth said Netflix’s hybrid DVD/streaming model had been a “competitive advantage,” but three-quarters of Netflix’s new subscribers were streaming-only.
“It’s possible now each business may be holding the other back,” Anmuth wrote in a note to clients.
Andy Rendich, who has worked at Netflix’s DVD service for 12 years and has led it for the last four years, will become the CEO of Qwikster, Hastings said.
Unlike Netflix’s current DVD plan, Qwikster will feature a videogame upgrade for customers who want to rent Wii, Playstation 3 and XBox 360 software.
“Members have been asking for video games for many years,” Hastings said, “and now that DVD by mail has its own team, we are finally getting it done.”
Photo credit: Consumerist