Reed Hastings, Co-Founder and CEO of Netflix, sent a mea culpa for having poorly handled the notification of the split Netflix's DVD rentals and online streaming service. The email and related blog announced that the Netflix DVD rental service will be further split and will become "Qwikster.com."
He explains:
"We realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently."
Hastings addresses Netflix members, apologizing to those who "felt we treated them thoughtlessly."
His apology stated that he "should have personally given you a full explanation of why we are splitting the services and thereby raising prices. It wouldn't have changed the price increase, but it would have been the right thing to do.”
The letter comes following 3rd quarter reported losses of Netflix stocks, customer outcry and the loss of a number of members who looked elsewhere for streaming services. Since the original announcement, many Netflix members have cancelled their subscriptions and looked to other streaming sites, causing Netflix stock prices to plummet. According to CNET, over the past three months alone, the company's shares are down 47.88 percent to $132.27.
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“I always thought that one of the primary objectives of any business was to meet the needs of its customers,” commented Phil Gallagher on the blog post. “It sounds like you're asking your customers to change in order to meet the needs of your business!”
For Netflix DVD-only subscribers like Bonnie Tritel, the split is welcome. Bonnie lives on ten acres with her husband, sculptor Jeff Tritel, in a rural area that does not have easy access to high-speed internet. She has felt that it was unfair that she had to pay for a streaming service that she cannot yet access.
Several months ago I had a conversation with Netflix CEO Hastings, who told me that the DVD business was steady and that they would not eliminate the service. Still, as with all movie rental options, people are increasingly moving away from physical media like DVDs and toward online streaming. Perhaps this split is inevitable, as Hastings says in his email:
"I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.”
“So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently."
For more details about the split, check out Hastings’ blog post on Netflix.com.
UPDATE 10/10/11: Netflix Abandons Qwikster Branding Plan