Netflix Spins Off DVD Rental into Qwikster, Apologizes for Lack of Communication

There will be two companies, one for streaming and one for DVD rentals

By Lucian Parfeni on September 19th, 2011 09:10 GMT

Netflix CEO Reed Hastings has published an apology for the way his company handled a price change (hike) this summer. He's not sorry for the price increase, in fact there are more news on that front, but he is sorry that the company and him personally failed to communicate better with the customers.

Along with the apology, Hastings also announced that the DVD-rental and the streaming businesses are parting ways and will become two separate companies.

Netflix will carry on with online streaming exclusively, like it does in all of the other countries it's now available in.

At the same time the DVD business will become Qwikster and will operate like an independent unit, headed by Andy Rendich who has been overseeing that part of Netflix for the past four years.

A couple of months ago, Netflix announced that its subscribers will have to start paying for both the DVD-rental service and the streaming service full price. For those that subscribed to both and wanted to continue, it represented a 60 percent price hike.

The change didn't go well with subscribers and the company recently updated its predictions for the third quarter, lowering expectations of subscriber numbers by one million, though mostly from the DVD-by-mail service.

"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," Hastings wrote.

"I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both," he said.

"It wouldn’t have changed the price increase, but it would have been the right thing to do," he explained.

Hastings explained that he didn't want Netflix becoming AOL or Borders, companies still clinging to their old businesses, outmaneuvered by more nimble competitors and new technologies.

Which is why Netflix decided to split up the company, though it only revealed this now. Moving forward, those who want streaming will continue to use Netflix.

If they also want DVD-by-mail rentals, they'll have to subscribe to Qwikster, meaning two accounts and two bills. At the same time, Qwikster is expanding by adding video game rentals, for an additional fee, to its existing DVD and Blu-ray offering.


Netflix's DVD rental business will be renamed Qwikster
   Netflix's DVD rental business will be renamed Qwikster
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