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Netflix Announces They Are Splitting into Two Services

Every Netflix subscriber – and most everyone else who reads or hears the news – learned a couple of months ago that Netflix was drastically increasing their rates. (Scroll down to July 12th’s entry.) Instead of $7.99/month for one DVD at-a-time or $9.99/month for one DVD at-a-time plus unlimited streaming, the DVD mailing service would remain at $7.99/month and unlimited streaming would also be $7.99/month. There was still a combo plan, but it was $15.98/month – no discount. Apparently the price increases were necessary to better reflect the costs of the services and to help them compete with other streaming services. As I recall, Netflix compared the rate increase to the price of a coffee from Starbucks. This comment, while true, seemed a bit flippant and angered many people so much that many were threatening to drop Netflix altogether.

Apparently many people followed through with their threats, because Netflix recently lowered their US subscriber forecast by 1 million, as reported by Reuters. And you can see from the above photo (captured from the Bloomberg app on my iPad 2 this morning), Netflix stocks took a hit in mid-July when the price hike was announced and have continued to slide.

This morning, I (and all Netflix subscribers) received an email from Reed Hastings, co-founder and CEO of Netflix, with an apology for how he handled the rate hike. You can see the text of that email at the Netflix official blog. He says “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) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.” He says the changes Netflix had made in the past had been successful without much CEO communication, and he assumed that would hold true so long as Netflix kept growing and improving.

He goes on to say “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.” He says that the DVD mailing service might not last forever, but they want it to perform well for as long as possible, so they are separating that service from the streaming service. The streaming service represents the future of Netflix, so it will continue under the Netflix name. The DVD service will now be called Qwikster, and it will soon also be offering a game rentals upgrade option for “those who want to rent Wii, PS3 and Xbox 360 games”, among other planned improvements. The Qwikster website will be online in the near future.

The two services will be two separate companies, with separate billing. If you continue both services, you’ll have two charges on your card, and you’ll need to go to both companies to update should you ever need to change your billing information.

Go to the Netflix official blog to read more details of the new services and to watch a video of Hastings and Andy Rendich (the new CEO of Qwikster) explaining the changes.

I had dropped the DVD rentals some time ago and continued with only the streaming service, so the rate hike didn’t impact me. I’ll admit that I could see the need for the price increases, but I thought that perhaps they should have done a couple of incremental increases to make the bitter pill go down easier. I had actually forgotten about it until I saw the news reports recently about the stock prices for Netflix. The email I got today is proof that Netflix is admitting they approached things incorrectly and are trying to address that now. What do you think? Will this apology and changes to the company help soothe angry customers? (Are you one of those angry customers?)

{ 14 comments… add one }

  • Julie September 19, 2011, 1:19 pm

    I dropped my streaming only service a couple weeks ago mainly due to the fact that their selection of streaming titles aren’t all that great. I would have stayed if they allowed streaming of all the latest and greatest movies instead of stuff that’s pretty old and obscure. Now that the new Fall TV shows are starting up, I won’t have the need for movies anyway, since I DVR entirely too many network shows ;)

  • BJN September 19, 2011, 3:13 pm

    I started out dropping the DVD service, then when I looked at my queue and dug through the paltry offerings, I dumped the streaming service too. If Netflix had shown an intention to improve streaming at the time of the pricing split, I may have hung on for a while. But since I’m one of the million customers Netflix lost since the price split, I didn’t get an apology email.

    I seems that “Qwikster” is a name that took about 15 minutes to brainstorm and again, the split is a tease with nothing of substance to offer subscribers. The DVD business has clearly been tagged for a slow, but sure death.

    In the interim, I’ve picked up a Roku and I’m streaming Amazon, Blockbuster and other options. I’m getting even more value from Amazon Prime and I don’t see the need to for a Netflix subscription of any kind, even if they improve their catalog.

  • William Lefler September 19, 2011, 3:48 pm

    I dropped the DVD subscription as soon as they announced they were double dipping. I dropped the streaming when they failed to follow thru on content. Guess that makes me one in a million.

  • scf September 19, 2011, 4:13 pm

    An apology that doesn’t involve a price rollback doesn’t strike me as sincere. Mark me as another one of the million.

  • P Garrity September 19, 2011, 4:22 pm

    I dropped from 2 DVDs a month to 1 to keep the overall price the same as before the hike. Splitting up the service into two pieces will make this much more of a pain so like others I will take a look at alternatives like Amazon. It’s a real shame though, I have enjoyed netflix over the years. Its interface on the Wii was great, the fact that it remembered where I was if I watched part of a movie on one platform and wanted to pick it up again on a different platform. Hopefully other services will be as good or better with the tech.

    Sad to watch something good fall apart due to poor management decisions.

  • Joe September 19, 2011, 4:38 pm

    It seems Netflix CEO shows no sign of remorse or intelligence. His so called email I received show same arrogance he show earlier.
    I was going to hang in but after that dumb email, that’s it. It’s time to say good bye.

  • jhon September 19, 2011, 6:02 pm

    I dropped DVD rental, keeping streaming. It’s got a fair amount of stuff for the kids and I’ve got it on most of my “portable” stuff.

    I’m strongly considering dropping streaming, too — if they don’t improve selection.

  • Rob Tillotson September 19, 2011, 10:21 pm

    This announcement was the motivation I needed to finally drop streaming, which is too lacking in content and video/audio quality. (Even if I did find something I wanted to watch, I could not get over the prospect of simply waiting a day or two to get a version with a watchable picture and 5.1 audio.) The part that makes me mad is the perception that they are basically just brushing off DVD users with a good laugh at what backwards hicks we are, so funny that they couldn’t even bother taking the naming of the new service seriously…

    I admit, last night it did feel really good to delete the netflix app off my phone and PS3 :)

  • Julie September 20, 2011, 9:47 am

    I canceled my acct a few weeks ago. I see that I received the explanation email this morning… DUHLEET

  • Rob O. September 20, 2011, 2:30 pm

    Stick a fork in ‘em, they’re done. They’ve allowed their greed and lack of customer appreciation drive their business into the ground.

    Sadly, lots of lemmings will continue to pony up bucks to line Mr. Hastings’ pockets in spite of his cavalier attitude and the streaming service’s weak catalog.

  • BaldSpot September 20, 2011, 9:55 pm

    I’m the oddball here, I guess. Not having watched much TV or movies over the past 50 years, I’m finding a load of stuff to watch on streaming, with an occasional DVD thrown in. I’m not complaining. Sure beats the beans out of lame TV.

  • Dave Hysom October 1, 2011, 8:26 pm

    >As I recall, Netflix compared the rate increase to the price of a >coffee from Starbucks. This comment, while true, seemed a bit >flippant

    It wasn’t flippant so much as ignorant. regardless of economic theory, people DON’T make all decisions based on logic. Netflix should hire a social psychologist if they want to promote their brand(s).

    OK, it was flippant. And a main reason I canceled my subscription. The US is supposed to operate on a free-market system. So I voted with my $.

  • Rob O. October 1, 2011, 10:40 pm

    My sentiments exactly, Dave! It isn’t Mr. Hastings’ job (or right) to tell me what corners to cut to compensate for a raise in their subscription rate. And his “apology” was one of the most backhanded, insincere tripe I’ve heard in quite some time.

    I do miss Netflix- even the streaming, which had added a few things just in the past month or so that I had really wanted to see – but like you, I couldn’t tolerate the management’s careless, disrespectful approach to customer service and consumer loyalty so I too voted with my (lack of) dollars.

  • Ken Schoenberg October 1, 2011, 11:50 pm

    @Rob O – Netflix is still the best deal in premium content. If you have children there’s nothing that even comes close to the streaming service. Somehow that weak catalog of their’s produced over 240 titles last month (a little under 120 hours as we allow our kids 2 hours of “TV” a day) that my two boys enjoyed on two different computers at the same time). Mind you I’m not talking movies, but shorter kid shows, episodes…best of all there are none of the horrid commercials services like Disney Channel or Nickelodeon pump out every few minutes.

    My plan is 2 DVDs and streaming and costs $20. I tend to find a fair amount of stuff I like on the streaming. For instance, the series “Breaking Bad” is available now.

    The way they announced the price increase and the “apology” were very poorly done. On the positive side they gave everyone a couple of months warning unlike services like DirecTV that have almost automatic price increases that come with barely a month’s notice. I also believe people overreacted. It’s not as if they hurt anyone.

    Hey, I fully understand people who didn’t like the price increase or the service and quit…but using pejorative terms for the people that still find great value in the service is rather inconsiderate.

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