Netflix spins off its DVD-by-mail service as Qwikster
Netflix CEO Reed Hastings sent a letter to subscribers on Monday, admitting he "messed up" and announcing that it would spin off its DVD and Blu-ray-based mailing business as a new service dubbed "Qwikster."
The company's changes come in response to a subscriber backlash that was spurred by higher prices for rentals of physical DVDs. Hastings said the pricing for combined streaming, via Netflix, and mailed rentals, from Qwikster, will remain the same as it is currently.
"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," he said.
The changes will leave Netflix as a streaming-only rental service, making it in even more direct competition with Apple's iTunes. But while Netflix is exclusively a rental service for streaming video, Apple's iTunes is largely focused on purchases.
Apple recently moved even more away from the rental business, when the company abandoned 99-cent TV show rentals, a service that originally launched in 2010 with the company's revamped $99 Apple TV. Apple revealed that iTunes customers "overwhelmingly" preferred buying TV shows over renting them.
The new Qwikster service will also allow the company to expand its mail services to include console video games. For an extra fee, in the same way users are charged for Blu-ray deliveries, Qwikster will rent Xbox 360, Playstation 3 and Wii games to customers by mail.
Netflix remains the dominant player in digital video delivery in America, as the NPD Group found in March of this year that Apple's iTunes represented just 4 percent of domestic streaming and downloadable video content. The Netflix Instant Watch streaming service was said to represent 61 percent of all paid digital video viewings.
But in terms of sales, where Netflix does not compete, Apple is the undisputed king, with a study released in February revealing that iTunes represented 64.5 percent of the market.
Apple has been rumored for years to be interested in offering TV subscriptions through iTunes, allowing users to pay a flat monthly rate to have access to their favorite shows. One plan pitched to television studios in 2009 would have allegedly cost $30 per month.
But those plans never materialized, and Apple instead turned its attention toward the ill-fated business of 99-cent TV show rentals. That offering, too, was met with resistance from content providers, who said they felt Apple's pricing was too cheap.
When 99-cent TV rentals debuted in 2010, Apple only had two of the "big four" U.S. networks onboard -- ABC, which is owned by Disney, the company in which Apple co-founder Steve Jobs is the largest shareholder; and Fox, owned by News Corporation, which partnered with Apple to launch The Daily for iPad earlier this year.
The full letter from Hastings to Netflix subscribers is included below:
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
The company's changes come in response to a subscriber backlash that was spurred by higher prices for rentals of physical DVDs. Hastings said the pricing for combined streaming, via Netflix, and mailed rentals, from Qwikster, will remain the same as it is currently.
"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," he said.
The changes will leave Netflix as a streaming-only rental service, making it in even more direct competition with Apple's iTunes. But while Netflix is exclusively a rental service for streaming video, Apple's iTunes is largely focused on purchases.
Apple recently moved even more away from the rental business, when the company abandoned 99-cent TV show rentals, a service that originally launched in 2010 with the company's revamped $99 Apple TV. Apple revealed that iTunes customers "overwhelmingly" preferred buying TV shows over renting them.
The new Qwikster service will also allow the company to expand its mail services to include console video games. For an extra fee, in the same way users are charged for Blu-ray deliveries, Qwikster will rent Xbox 360, Playstation 3 and Wii games to customers by mail.
Netflix remains the dominant player in digital video delivery in America, as the NPD Group found in March of this year that Apple's iTunes represented just 4 percent of domestic streaming and downloadable video content. The Netflix Instant Watch streaming service was said to represent 61 percent of all paid digital video viewings.
But in terms of sales, where Netflix does not compete, Apple is the undisputed king, with a study released in February revealing that iTunes represented 64.5 percent of the market.
Apple has been rumored for years to be interested in offering TV subscriptions through iTunes, allowing users to pay a flat monthly rate to have access to their favorite shows. One plan pitched to television studios in 2009 would have allegedly cost $30 per month.
But those plans never materialized, and Apple instead turned its attention toward the ill-fated business of 99-cent TV show rentals. That offering, too, was met with resistance from content providers, who said they felt Apple's pricing was too cheap.
When 99-cent TV rentals debuted in 2010, Apple only had two of the "big four" U.S. networks onboard -- ABC, which is owned by Disney, the company in which Apple co-founder Steve Jobs is the largest shareholder; and Fox, owned by News Corporation, which partnered with Apple to launch The Daily for iPad earlier this year.
The full letter from Hastings to Netflix subscribers is included below:
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
Comments
Now, Borders ceases to exist and AOL has evolved several times from an ISP to now a puppet website of the Huffington Post.
Thankfully, Netflix's recent moves have woken me up to the diminished value of its businesses. The selection of streaming content has always sucked, and will get worse when the Starz contract ends in February. As much as Mr. Hastings will hate to admit it, the DVD service is Netflix's bread and butter. So he kicks it to the curb. But even that has been eclipsed by instant gratification services such as Redbox and iTunes.
And parroting Apple's utterly far-fetched claim that viewers "overwhelmingly prefer" to own TV shows vs. rent them is just insulting to readers' intelligence. Let's see, let me pay $5 for a single half-hour TV show of disposable entertainment instead of renting it for $1 - yeah, that sounds like the savvy American consumer to me... not. Streaming Netflix is popular because it's a bargain, it's simple, and it has just-enough variety of programming. Apple TV charging $5 for movies offers nothing more than cable already does (sometimes for less), so if Apple want to move it out of "hobby" status, they'd better take a good look at the $8/month Netflix model, and they'd better keep an eye over their shoulder on Hulu.
Quitster.
Indeed. But I suspect that Netflix is/was a draw to Apple iOS devices. Could have an impact on demand for Apple TV and others.
What was AOL dialup great at? I remember back in the 90's getting endless busy signals until AOL was sued for breach of contract. What was Borders great at? Barnes and Noble always had a better selection of books. I finally stopped referring to Borders as a bookstore.
Now, Borders ceases to exist and AOL has evolved several times from an ISP to now a puppet website of the Huffington Post.
Thankfully, Netflix's recent moves have woken me up to the diminished value of its businesses. The selection of streaming content has always sucked, and will get worse when the Starz contract ends in February. As much as Mr. Hastings will hate to admit it, the DVD service is Netflix's bread and butter. So he kicks it to the curb. But even that has been eclipsed by instant gratification services such as Redbox and iTunes.
Same here. I am amazed at how bad the Streaming Movie selection is - mostly B movies and seeing the same ones at that for many months. On the DVD Side, the wait is glacial compared to what i could get for cheap at the local rental store or Redbox or Itunes or....
They will auger in soon. Hulu & Blockbuster say thanks
Apple probably not too upset either...
Netflix would kick ass if they had what was available on the DVD rental side available on the instant streaming side.
The ironic thing is piracy is the concern/reason for not having that content available on the streaming side, and yet ripping a DVD is easier than ripping a live stream.
cut out the "dvd" option altogether
and use redbox
i figured that i rent less than 8 dvd's a month and i can reserve them at the redbox at my nearby walmart and
RECUCE my fixed cost
netflix is becoming less and less relevent
hello redbox
Starz? Really? Are some people blind or do some people just have really low standards?
I have Netflix streaming and I'm very glad to see Starz go as Starz content on Netflix is shit quality. I'm not talking shit quality in terms of the selection, I am talking shit quality in regards to the technical quality of Starz's content. When you go to see a Starz movie on Netflix it looks like garbage. It's on a tiny little box with big black borders around it. Starz content on Netflix is completely useless to me (and anybody else with taste and standards) and Netflix is better off spending their money buying better content from elsewhere now that Starz and their shit content will be gone.
As for Netflix splitting their business in two, that is a good move. Streaming is where the future is at and DVD rentals through the mail is a dying business. I think that Netflix streaming is a great deal for $8 a month. Show me who else has something better? I recently saw that they just added the first 3 seasons of Breaking Bad, that's fucking awesome!
It seems as if some people who complain about Netflix seem to be making the same tired arguments, as if they were all repeating the same dumb talking points.
Starz? Really? Are some people blind or do some people just have really low standards?
I have Netflix streaming and I'm very glad to see Starz go as Starz content on Netflix is shit quality. I'm not talking shit quality in terms of the selection, I am talking shit quality in regards to the technical quality of Starz's content. When you go to see a Starz movie on Netflix it looks like garbage. It's on a tiny little box with big black borders around it. Starz content on Netflix is completely useless to me (and anybody else with taste and standards) and Netflix is better off spending their money buying better content from elsewhere now that Starz and their shit content will be gone.
As for Netflix splitting their business in two, that is a good move. Streaming is where the future is at and DVD rentals through the mail is a dying business. I think that Netflix streaming is a great deal for $8 a month. Show me who else has something better? I recently saw that they just added the first 3 seasons of Breaking Bad, that's fucking awesome!
by the time that future is here my blu-ray collection will have grown even more
now with this dumb move i'll probably dump netflix streaming and keep the blu ray plan. buy an apple tv and dump my dvr. add hulu or just buy the few shows my wife likes on apple tv. and keep buying blu rays
Apologizing for something without making any amends, or correcting the thing you are apologizing for, is nothing but p.r. spin and reveals myopic hubris.
And parroting Apple's utterly far-fetched claim that viewers "overwhelmingly prefer" to own TV shows vs. rent them is just insulting to readers' intelligence. Let's see, let me pay $5 for a single half-hour TV show of disposable entertainment instead of renting it for $1 - yeah, that sounds like the savvy American consumer to me... not. Streaming Netflix is popular because it's a bargain, it's simple, and it has just-enough variety of programming. Apple TV charging $5 for movies offers nothing more than cable already does (sometimes for less), so if Apple want to move it out of "hobby" status, they'd better take a good look at the $8/month Netflix model, and they'd better keep an eye over their shoulder on Hulu.
Your response is exactly what I felt. Both Netflix and Apple insult our intelligence with these statements. Netflix took a bad move and made it worse. Nice trick.
Wow! how stupid. They have this great brand name. Technology would allow them to integrate the services like they are currently doing. But now they want us to go to two different websites and have two different logins. This makes no sense!
It makes perfect sense if they plan to sell off the DVD service in the future. No one will blink an eye at a news article stating, "Qwikster sold off to ????".
Two years with Netflix was a nice run, but we already cancelled our service. Goodbye Netflix and goodbye Qwikster (I feel silly typing that name). We will use the extra $$$ and just upgrade our U-verse account from U100 to U200.
I have Netflix streaming and I'm very glad to see Starz go as Starz content on Netflix is shit quality.
You are glad to see 8% of the content you pay for disappear with nothing announced to replace it?
How to kill a good thing 101.
And “Netflix” is actually a great, logical name for the streaming-only service.
I’m still not likely to get both—maybe I’ll alternate! Offer a cross-promotion discount (again) even a buck off, and I might go for both.
If this is a sign of worse to come, that’s a shame
It seems as if some people who complain about Netflix seem to be making the same tired arguments, as if they were all repeating the same dumb talking points.
...
As for Netflix splitting their business in two, that is a good move. Streaming is where the future is at and DVD rentals through the mail is a dying business. I think that Netflix streaming is a great deal for $8 a month. Show me who else has something better? I recently saw that they just added the first 3 seasons of Breaking Bad, that's fucking awesome!
The idiocy is taking your well-know brand name that stands for movie rentals (whether dvd or streaming) and calling it something completely different, billing separately, managing the website side separately.
Bundling it and using the brand name keeps people using that product. A '$2 off per month' when using both DVD and streaming deal would help with the same. Calling it Inprise instead of Borland doesn't. (Oh, sorry, just thinking of other completely asinine moves like that. ) You lose the entire brand for no reason.
There's no reason that Netflix can't have 2 units with independent heads running them - make sure you have synergy where appropriate, but that each person can focus on running the best version of their particular business. You don't have to dump your company name - unless you're really trying to destroy your own brand for some reason. Maybe the guy shorted his stock or something.
For that matter, 'Hi, I'm the largest hammer maker in the world. I'm going to stop making hammers now and focus on enterprise software because it has higher margins.' has to go down as another piece of lunacy. Replace hammer with PC, obviously. And of course people make these terrible decisions and walk away with huge severance packages when the ouster comes. C'mon, _I_ can make bad decisions and take a lot of money for it, where's my gravy train?