Netflix Apologizes, Announces Qwikster

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In light of their losing a million customers after announcing a new pricing structure, it shouldn’t be too surprising that Netflix has issued a mea culpa. From Reed Hastings, Netflix co-founder and CEO:

When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, ​“Actions speak louder than words,” and we should just keep improving our service.

But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.

Netflix also announced that they are spinning off the DVD portion of their business into a brand new company.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

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 feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

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”.

It’s a risky move to be sure. Even as streaming becomes more popular, a lot of folks (myself included) still associated ​“Netflix” with those red envelopes. It’s become a very effective, well-known, and dare I say, beloved brand. As such, it’s going to be a big adjustment. That, combined with the licensing issues that Netflix is beginning to face — such as the loss of the Starz catalog — are bound to make the coming months very rocky, indeed. For what it’s worth, I hope they make it.