The Netflix split. Why, Netflix? Why?

Netflix made a lot of people angry this summer when the company announced a price hike for its DVD-by-mail and video streaming services. The price change split the DVD-by-mail and streaming services into two separate options, when previously they were bundled.

Price hikes are never popular, but the complaining and media coverage of said complaining may have gone too far.

The split between the DVD-by-mail and streaming services became more pronounced today, when Netflix CEO Reed Hastings announced in a letter to subscribers (who include this blogger) that Netflix will continue to stream video, but its DVD-by-mail option will be carried out under the guise of a new company called Qwikster.

The switch, to happen in a matter of weeks, will mean that customers who have streaming and mail services will have to manage two separate accounts. Qwikster customers will also be able to rent video games by mail if they pay an additional premium, but Hastings tells customers there will be no further price changes.

Got that? No? Maybe? Is Netflix crazy like a fox?

My initial reaction is that Netflix’s impending split makes no sense at all, but maybe the company’s executives know more than I do. Nonetheless, Qwikster strikes me as a terrible name. The name “Netflix” tells me that I can watch movies, or, “flicks” on the Internet. The word “Qwikster” tells me something is quick, but I have no idea what.

Netflix announced lowered subscriber estimates but the company also reported that executives stuck  by their new pricing plan. But splitting the service makes it easier for customers to leave at least half of their plan, and the competition seems to be tougher in the streaming services that Netflix pioneered.

If I want to watch a movie that Netflix doesn’t stream, it’s easy under the company’s current structure to request the DVD and have it in a couple of days. If another company has a better streaming option, which Hulu Plus may have with its addition of the Criterion Collection, I may end up choosing to leave Netflix and maybe keep Qwikster. Or maybe I just support my local video store, depending on which is a better value for my dollar.

Reactions from around the web after the jump:

From Farhad Manjhoo at Slate:

The two services (Netflix and Qwikster) won’t share anything–your queues, ratings, and even
your billing information will remain distinct on each site. In a sign of
how hastily Netflix arrived at this idea, it seems to have forgotten to
search for @qwikster on Twitter. That handle is owned by a person whose avatar is an image of Elmo smoking a joint.

Which raises the question: What is Reed Hastings smoking? As far as anyone can tell, he seems to have rolled up pages from The Innovator’s Dilemma,
Clayton Christensen’s influential 1997 book about the ways that
successful companies die at the hands of upstarts. Christensen, a
professor at Harvard Business School, coined the term “disruptive technology,”
which describes innovations that come out of nowhere to undercut a
market leader’s dominant position. Christensen cited the way that
Digital Equipment, the leader in 1970s-era corporate minicomputers,
completely missed the 1980s boom in personal computers. But a better
example may be Netflix itself–its all-you-can-eat business model
disrupted, and eventually killed, the previously dominant Blockbuster
model for movie rentals. Hastings is likely paranoid, then, that Netflix
is vulnerable to the same kind of disruption. And that’s the logic
behind the mail/streaming separation. Hastings would prefer to kill his
own golden goose before anyone else beats him to it.

(snip)

And yet: It could work. In The Innovator’s Dilemma, Christensen argues that the companies that are most vulnerable to disruptive technologies are those that have really good
management. The problem with good managers is that they tend to listen
to customers. And the problem with customers is that they don’t always
know what’s best for them. If you were a devoted Blockbuster customer in
2001, and if Blockbuster’s CEO sent you an email announcing he was
closing all the company’s stores and switching to a DVD-by-mail service,
you would have balked. From now on you’d have to wait three days for a
movie? You’d have to choose your movie on your computer–how would you do
that when you didn’t even have Internet service? You’d have to pay a
monthly fee? What if you just watched one movie a month? All of this
would have sounded like too much hassle.

From Mike Isaac at Wired:

Hastings also announced that Qwikster will also offer video game
rentals by mail to customers, a market previously uninhabited by
Netflix. Games will be available for the Xbox 360, PS3 and the Nintendo
Wii. This is a new market that could make many subscribers happy and
breathe new life into the DVD side of the business by adding a new
revenue stream.

However, it’s impossible to see how the split itself benefits
customers. The price and plan changes that flustered many of them months
ago remain in place, but the company now directs them to two web sites
with two search indexes, two completely separate sets of
recommendations, two entries on their credit card statements, and so
forth.

As last week showed, when customers leave a company, investors are
quick to follow. The hasty rebranding — Netflix didn’t even own the
@qwikster Twitter account — underscores the fact that Netflix’s myth of
inevitability is simply gone. 

And finally, from Netflix’s own subscribers.