Netflix spins DVD rentals into new business dubbed ‘Qwikster’

By on Sep 19, 2011 at 7:45 AM
Business September 19, 2011

Netflix CEO Reed Hastings in a letter to subscribers on Monday stated that Netflix will no longer operate the DVD rental-by-mail service that carried it to the top of the home entertainment industry. Instead, Netflix will be a streaming-only service while the DVD rental business — which will soon add video games to its portfolio — is spun off and rebranded Qwikster. “I messed up. I owe you an explanation,” Hastings’ letter to Netflix customers begins. “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.” The chief executive continued, attempting to clarify that streaming is the company’s future and this is why it began the process of separating its two services last year. The spin-off of Qwikster as a DVD rental business is the last step in that process, and while investors aren’t terribly happy with the company right now, the move allows Netflix to concentrate on its future: streaming content. Hastings’ full letter to subscribers follows below.

Dear [redacted],

I messed up. I owe you 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. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

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.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: 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.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

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  • mashytweets

    I already switched back to blockbuster

    • Anonymous

      .,, . I just got a 827.89$ iPad2 for only 101.17$ and my mom got a 14989.89$ HTV for only 253.93$, they are both coming tomorrow. I would be an idiot to ever pay full retail prîces at places like Walmart or Bestbuy. I sold a 37″ HTV to my boss for 500$ that I only paid 78.24$ for.
      I use ÉgoWin.com

      • Guyaneseman

        Please stop spamming

      • Anonymous

        Its a bot. BGR, anything you can do about this?

  • Mv07043

    There was a time when every move Netflix made just made their customers happy and loyal.  It seems they’ve lost the magic touch.  Every decision they make now leaves you scratching your head wondering what they were thinking and serves to drive most farther and farther away.  Now I get the pleasure of maintaining two sites to watch movies?  Great.

    • Anonymous

      You’re trying to make something complex sound really simple. 

      To sum it up:
      Netflix knows that streaming is the future and Hollywood is doing their best to prevent it. In their minds the current system is extremely profitable. The reason the Starz deal fell through isn’t because Netflix didn’t offer enough. Starz wanted YOU to pay more so cable would seem more reasonable in price. Netflix would rather have you cancel your DVD rentals and continue to use their streaming service so they can push Hollywood towards a deal to stream their best content.

      Netflix is a true innovator but it saddens me that they will probably never become as dominant as they should. Once we make the shift to streaming content the floodgates will open. Apple, MS, Google, Amazon and Facebook will strike similar deals which will marginalize Netflix.

      • Anonymous

        You are totally missing the point or just Netflix worshiping at the moment.
        The entire user base is head scratching over this. 
        Why do I need to use 2 sites to manage services from the same company?? It is simply stupid.
        Did it not work before for many years now?? It is simply mind boggling.

        This is nothing but a knee jerk reaction by management to throw gimmicks at users.

        If they really were planning to spin it of as Kwik-E-mart or Quirkier, why not just do that instead of first raising the prices to annoy customers. I guess the highly paid consultants told them to rename the services and spin it off so that people will come back. MAJOR FAIL…

        I will bet you that very shortly new third party sites will spring up which allow you to manage both DVD and Streaming queues from one place. Isn’t that What Netflix used to do?? DUH!!!

      • Cardin411

        If Netflix is seperated into 2 different companies, which it is doing, the streaming business will be able to cut new deals for content that was not available to them while they were a DVD-by-mail service. I was upset with Netflix as well over the past couple of months, but I think this move makes sense and will benefit us in the long run by having better content to stream in the future. 

      • Carmen

        I’m not scratching my head. Perhaps illiterates are. I’m sure that they did market research that most people don’t do both (streaming and mail-order). They probably introduced the pricing change knowing that most people would pick one or the other. It is common for marketers to have a brand stand for one product or service. I’m sure that they had this new name in the works, but ultimately decided to can it in order not to confuse people. Now that people just basically looked at them as doubling the price instantly for the same service and were pissed and cancelled en-masse, they went back to the concept of having two entities to run their two distinct businesses.

        For some silly reason, Hollywood loves physical media because the prices they can charge are largely inflated. CDs and DVDs that cost a dollar to make are sold for between ten and twenty dollars with content on them. The digital era is ushering in streaming and a pay-per-use concept that is represented by subscriptions right now. Instead of realizing that having a movie or song readily available on a server that gets uploaded once and can be consumed an infinite amount of times and the little overhead associated with that, they’d rather manufacture physical media. Truck it to brick-and-mortar stores, have them sit on it until a Tuesday, put it out, charge a lot. And count how many people bought it for charts and ratings. They could more easily count digital views or listens, but they don’t wanna change their system of doing things because it works. They should be embracing digital and quickly figuring out how to monetize it instead of litigating against it and refusing to make deals with digital content providers.

        To make a long story short, Hollywood caused this because if Netflix had to continue to tend to their cash crop (DVDs), they would lose focus in the streaming space, which is the only future.

  • Anonymous

    I can understand the need to chop off a diseased dying limb, but this just feels wrong. There must be more behind this, possibly licensing issues. 

    • Anonymous

      The only problem with that dying limb was it was the only way to get a LOT of otherwise unavailable titles. In fact most things worth watching had to be mailed. If that doesn’t change soon the business will start failing.

  • Anonymous

    Netflix does not have sufficient movies in their streaming options.  There are many, many movies that are only available through the dvd/mail option.

    Netflix also does not support Ubuntu/linux for streaming, which is a problem for me.

    • somedude0123

      Agreed, the content in steaming service is shit. And on my PS3 it’s very difficult to navigate. Worthless.

  • Anonymous

    Got this letter this morning and it reminded me to cancel the subscription for the DVD’s. I will keep the streaming option for the moment but if they kick the price up that is gone also.

    • Omar_Jesus_928711

      It reminded me too to cancel it. I’m done with that now. I might switch to blockbuster. I’m sorry Netflix so many years but it’s too expensive.

  • Thanol

    Dear MBAs,

    A company can be good at more than 1 thing, especially if the two products/services are related.

    Splitting companies up doesn’t make either company better than it was before, unless you remove the management.

    • Jellis1414

      They are just trying to cloud up the fact that they are charging double for the services you use to get before….  blockbuster here i come!!!

  • Anonymous

    I would have been ok with the streaming only service if it offered all that the DVD only service offered.  It seems that whenever I was looking for something that I wanted to watch right then, it was a DVD only option (even old movies).  And they even do ridiculous things like splitting up seasons of a TV show between streaming and DVD.  Example, “The IT Crowd”, seasons 1 and 4 are available for streaming, but seasons 2 and 3 are DVD only…simply ridiculous!  They lost me as a customer with the price changes that happened at the beginning of the month and I think this will drive more customers away as well. 

  • Ictponder

    To me it seems logical that Netflix would save money by streaming something as opposed to mailing it. I just don’t understand why their entire collection isn’t available for streaming. However, the fact that the better titles are only available on disc is a pretty good indicator of who is responsible.

  • serpentor

    Qwikster just sounds like a comic book villain.

    • Anonymous

      Thats my pr0n name 

  • Ryan

    I enjoy their online streaming section but that’s because I like the tv shows on there; the movie selection is fairly poor. I was upset with all the changes in the past year but I understand that in order for them to beef up their streaming selection and all, they gotta got rid of the mail DVD’s (costs too much I’m guessing). Although it’s kind of odd that they’re doing video games now when they don’t want to do any mail business because streaming video games is a long way away. If they can add recent movies to their streaming I’ll be happy because I was hardly using the DVD’s anyways

  • Anonymous

    So now we can’t see how crap our streaming list is because all the good stuff will be on a totally different website! Move of genius Netflix, now I have to work twice as hard to get what I want.

    So I assume you just want us all to leave and use Blockbuster instead?

    • Anonymous

      Oh and they also removed the Save for later list on the streaming option.
      Before when items in you list were not available for streaming, you would see them in the saved list.
      Well that list is now hidden for streaming users only.
      That way you can’t see items disappearing from streaming. Lol.
      The smoke and mirrors continues.

  • fmrnetfllixsub

    Maybe if the streaming titles had caught up with the DVD selection, this would have been the right move, but for now, this is premature.

  • http://www.apexcarpentryinc.com/blog/ Craig

    I see this as a move to sell Quickster. The only way the streaming will be viable in the future is charging for every download, otherwise you will never have new movies available.

  • Snax32

    They should call the new company “Spinster”  What a ridiculous move.  Thanks for making managing my account 100% more time consuming.

  • http://twitter.com/batrad Devesh Batra

    Moving back to Redbox….

  • Chet Stovepiper

    i went on netflix last night. the only thing i saw that was interesting was a doc about tigers made in 1997

  • serpentor

    What’s qwister gonna do when the postal service goes out of business… or cuts their delivery days to 3 days a week?

  • Anonymous

    Good morning, Netflix here! We know you’re already pissed at us for jacking up our prices, but guess what? We’re still not done screwing with you! We are no longer convenient! Your account has been split into two! You now have two queues and two bills! Stay tuned for an email about how we will be charging extra for streaming via smartphone and how we will no longer be accepting debit or credit cards!

  • Anonymous

    At this point it doesnt matter what netflix does they lost me and my money a long time ago.

  • Anonymous

    This is a strange choice from a marketing standpoint. They want to be seen as a one stop shop for video rentals but their steaming service is severely lacking. So when you browse online you see al the videos they do have but they must mail to you. Now you can’t see those and their streaming store will be bare…

  • Anonymous

    pricing, Starz, Qwikster… what’s next that digs Netflix into a deeper hole,  Their online offerings are starting to look ridiculous. New arrivals are from 1989 and beyond  My subscription is going, going, going…

  • Igloohead

    All I have to add is that Qwikster is a dumb name. Like, really dumb. Dumber than this comment, even!

  • Anonymous

    Sorry Netflix, if I have to pick I’m going DVD only. I know that’s so 2010, but until you can stream recent releases I want DVDs. I think your jumping the gun by a few years here. 

  • Anonymous

    People are ridiculous. They are jumping on netflix because they are separating the business. They ARE blaming netflix. Do they understand the Motion picture association and the movie studios are holding netflix HOSTAGE with ridiculous prices and stipulations. They had to do a 30 day limit on new releases to broker streaming deals but that it caused delays for DVD by mail service. By separating the business they can aquire deals seperately without the movie industry grouping DVD and streaming together. They will have more success. Even if this does not pan out people should not blame netflix. The movie studios are still stuck to old models and they are greedy bastards. STOP whining :)

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