Netflix Inc. announced it is separating it’s business into two separate entities, one for it’s original DVD mail order business, and one for it’s latest online streaming service. The DVD mail order unit will soon be called Qwikster, while the online streaming service will continue on under the same Netflix name.
It’s seen as a bit of a gamble for Netflix, as it may annoy their existing subscribers who get both services. Going forward they will be charged separately for each service, and they will have to go to a new separate website to access Qwikster. The standard netflix dvd envelope will now come labeled with Qwikster.
Netflix runs the risk of alienating their customers by asking them to deal with two separate websites and billings instead of just one. Add to that the competitive threat their Qwikster dvd business faces from the Redbox kiosks, coupled with the highly competitive online streaming market, analysts question the strategy. Netflix faces tough competition from Hulu, Amazon and a host of other streaming services.
Netflix already angered their customers in July 2011 when they announced their split plans and increased prices for users who used both the dvd mailing and the online streaming. In fact, some customers saw their total Netflix bills go up as much as 60%.
Netflix CEO Reed Hastings naturally sees the split as a positive, saying they will be better at streaming, and will be better at DVD mail order, as he wrote on the Netflix blog, as well as in a letter to subscribers.
Just last week, Netflix stock price plummeted after the company announced a much lower subscriber forecast for the third quarter in the United States. Hastings even went as far as admitting he “slid into arrogance based on past success” as reason for not explaining the reasons for the company split and subsequent rate hikes.