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Netflix CEO Reed Hastings apologized to customers late today and announced that Netflix will split its DVD and streaming video businesses and rebrand the DVD division. “In hindsight, I slid into arrogance based upon past success,” Hastings admitted in a blog post. He had to do something to win back his customers and stem his stock slide. Netflix has been under fire since it instituted a 60% price hike for its DVD and streaming video services. The change sparked a social media revolt and dropped its stock by nearly 50%. The company suffered another setback earlier this month, when Starz announced it would not be renewing its deal, which will mean Disney and Sony pictures won’t be available in 2012. “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,” Hastings added.
“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,” Hastings explained. “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.” The new unit will be a separate entity, and offer video game rentals. Netflix has named COO Andy Rendich as Qwikster CEO. The DVD by mail service will move to Qwikster.com in the next few weeks and feature the Qwikster logo on all of its packaging. The red envelopes, however, will remain.
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Arrogant and Greedy!
Really? How?
I’ve been a long-time user of Netflix and quite honestly I just don’t understand why people are so upset that the company is out to make a profit. Considering the price their charging, it’s not that much. If you truly, desperately cannot stand the fact that DVD and streaming are separate costs, then go to Redbox.
I think they should charge per each DVD rental, instead of by the month. If I only watch one or two movies a month, it should be less than someone that gets 10 movies per month. Their concept is beginning to backfire!
they do charge per DVD rental. the rate depends on how many DVD’s are at your house at a time.
The truth is – many already have. Being a strong supporter of this change tells me you are probably paid to promote the brand. I also have been a customer since Netflix arrived and was appauled that such a drastic increase was forced on all customers. Being the (now) largest of the category and also sales being the highest/most profitable shows your statement as incorrect. Yes, they are out for a profit which is fine but they are already pulling a hefty profit – the increase was explained as development costs to offer additional convenience to the customers. The company was then split to grow increased profits across both business units. Short answer – it was greed with a side of technology that made this move. The competition is primarily gone so the monopoly mentality took over; now that stocks have dropped by near 60% they are attempting a PR maneuver to keep customers from leaving. Blockbuster did the same and look where they are (at the hands of Netflix and Red Box). Why would Netflix make the same error? Basic business – small increases go unnoticed and reach the same target. Large increases only help to build your competitions business. We are all in business to make a profit but abuse – especially in an age of poor economy and heavy competition – is just ‘poor’ business.
Every company has to make money to survive, but when I company needs to raise their prices by 60%, they either losing money hand over fist, or due to the fact they had run Blockbuster out of business they felt it was time to reap their rewards. Either way the move can only be classified at poor business. Good business would have been to raise prices in smaller increments over a couple year period. Maybe I would still be a customer.
@Dan: I totally had the same exact thoughts. I think they should have raised prices more slowly over time.
They have… that’s what the article is about…
I agree, but the combo certainly differentiated Netflix from the others. Now they are going to have to compete based upon the streaming library alone…with some pretty heady competition, like Walmart (VUDU), Apple TV/iTunes. Plus, Hulu is bound to get into this biz, etc.
Online businesses that forget that it’s ALWAYS “Customers First” usually end up in the dustbin of webland…pity the poor shareholders, who have lost 50%+ of their value with this move.
OK, I will go to Redbox. Game over for NetFlix. History does repeat itself. Remember the AOL debacle when they raised fees for a product that was plentiful? I enjoyed getting the DVD’s in the mail while it lasted. Movies are readily available through cable.
That’s what I did. When I looked at my netflix queue and saw that I was mostly renting old movies, I cancelled. I have TCM for my old movies, and go to Redbox for any new movies I want to see (not many by the way). Works for me.
Realizing your mistake and apologizing for it — but yet doing NOTHING? Netflix has every right to charge whatever they want — could they have done it another way — i don’t think so — but this apology and not realizing the outrage — and then just separting the companies — you are just doing it for your shareholders — otherwise you would have at least tried to lower the price a bit or do something. It’s like apologizing for having an affair, but still continuing to do so.
Having never signed up for the DVD-by-mail service, I wasn’t bothered by the hike in prices nor its change to Qwister. As a streaming subscriber, however, I’m struggling to hang on. Four things I find very disappointing: 1) the dearth of content, everything I want to watch is only available on DVD. 2) I must share a queue and profile with my kids; 3) I can’t search for content from my “SmartTV” and the experience of finding content is different on every device I own. And finally 4) This statement, “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,” – I read this as saying Netflix will focus on internal operations issues and problems BEFORE it focuses on its value and benefit to customers. Netflix appears to have forgotten to solve a customer problem first and instead is looking inward. It risks pleasing no one with this choice.
I don’t see what is being done to please the customers. Will the prices be returning to normal?
I’m Reed Hastings and I messed up now. Um, no, now. Wait…Now. Smart business move for long term, but ill timed and stupid right now especially after losing Starz. Their streaming library is simply not up to snuff.
You blew it!
Qwikster? This whole post reads like a joke.
If his goal was to hurt the stock price further, this is the way to do it. I think he may be in competition with the CEO over at HP to see who can trash their company the worst.
So what is this guy apologizing for? He’s mouthing an apology but not making any actual amends…
Is he reducing the price hike?
Is he addressing customers’ dissatisfaction?
This guy is just trying to save his own skin from the board of directors and the shareholders. We have a title for that… COWARD.
Why should he apologize. If you don’t like the service don’t use it. But don’t whine like a little girl.
Exactly! There are any number of services out there competitively prices. Use one of them. It’s not like people are being forced to use Netflix.
Most of us didn’t whine, we just quietly disconnected the service. It’s the shareholders that are whining.
It’s not what they did, it’s how they did it. And that apology video was an embarrassment. How uncomfortable did that new CEO look, being handed the reigns to the dying end of the business? He looked like a soldier being told he was in the first wave to attack the Anthill. These guys are so floundering that it’s actually kind of sad to watch.
SPOT ON!! it means nothing to our bottom line…. but it means a lot to his ….
I don’t understand. He’s apologizing so now we have to pay for two separate services? Where’s the mea culpa. I don’t get it. He apologizes but finds a more clever way to get the extra money. Is that what’s going on?
I don’t what has changed if the prices remain the same.
Dear Reed Hastings,
Hate to say it but I told ya. You arrogant smogs think you’re too cool and powerful and can get away with screwing people over.
Guess you learned you were wrong. Back to Blockbuster streaming and ITunes.
Your apology is too little too late.
And as others said, time to make amends not put out a letter the PR guy wrote. You are one big TOOL.
Mr. Hastings has staffed his company with nothing more then “yes men.” If Mr. Hastings can run around town saying to everyone he wanted out of the dvd biz in 5 yrs then he got his wish. What else has Mr. Hasting done: start a distrubution co. then shut it down so netflix can spend hundred of thousands on a tv series which no one under 40 has heard of. Maybe now he will understand owning a library. Why Mr. Hastings would anyone under 40 pay u any money when they can download it (legally or illegally), view sites like hulu or crackle, or simply wait til its on HBO or demand. Mr. Hastings-u should have hired when you had the chance cause now your yes men and your ego has burned your company and its customers when all you had to do is listen and think in long term instead of every quarter. Nothing like a company owning a streaming site where the company has to buy contect instead of owning it. As my neice asked: is “cheers” in black/white cause its old? Much like Mr. Hastings thinking and Netflix’s board. Old and 20 something years behind….but hey its just business.
Too little, too late and too confusing. Separating the services means now I don’t want either. The great thing about Netflix was that it was easy and cheap…oh well…
It’s not arrogance. Like all other corporations, it’s GREED!!!! And he STILL doesn’t get it!!!
Judging from my past experiences with Netflix DVD-by-mail, You’ll get “Qwikster” for the first week, then be moved down the line to “Slowster”.
I’m never going back to them.
It’s crazy Netflix insists DVD-by-mail is more expensive than streaming. Netflix buys DVDs wholesale and rents each one out thousands of times without ever paying residuals and studios/filmmakers have no way to choose when or how unless they negotiate a rev share (from the unenviable negotiating position of not being able to stop a wholesale purchase). Plus those DVDs can be rented out forever. With streaming, Netflix has to license each film and work out an equitable license fee for a limited period of time. There’s no way the streaming license is cheaper than the DVD wholesale price… plus now that studios/filmmakers see Netflix Streaming cannibalizing their VOD sales the price is going to go up not down. Is the USPS really charging Netflix more than Xbox, Playstation, Wii, AppleTV, LG, etc? If so, why is the USPS going out of business?
They can’t be rented out forever. I just got one that was snapped in two. And there’s always that scratch that jams up the play.
DVD by mail means employing a lot of people to open, sort and mail DVDs. Streaming means renting server space. People are much more trouble and obviously more expensive than a server.
Have you seen the machines that do the work that you speak of? They do have people examine discs for QC though which is probably why I haven’t received a jacked up disc in a while.
Are you serious? They actually have people that check the discs before they go out? Cuz I just had 3 consecutive fails, one of which I couldn’t believe they let out the door since it was scratched the hell up. They gave me a ten cents refund for the month on my bill. What a slap in the face.
Why don’t just name the site quigqlieliu.com
or nestlequickdvd.com
no one is going to remember this name. maybe you did it on purpose, who knows
Qwikster.com? does this mean that i have to start using 2 websites, 1 for mailed movies and 1 for streaming? if i want to watch a movie and find that it isn’t available for streaming, i have to go to another website to add it to my mailing queue?
i for one didn’t really mind the price hike, but this is just stupid. “in order to try to justify the price hike, we’re making the service inconvenient.”
yeah, that’s all i got out of this too – “i messed up but now you have to use two websites instead of one”
Exactly. Also the #1 thing you gotta do with a domain name is give us something that is easy to remember and easy to spell (which this new one is neither).
So we let local video stores with a deep stock of rare and hard-to-find titles wither and die for a company that streams a select few titles that are only available for a limited time? I guess we’re all to blame.
Well, I don’t blame Netflix for that; I blame the studios who refuse to allow Netflix to show current releases so they maintain the status quo.
Uh…I don’t think “rare and hard-to-find titles” are the same as “current releases.”
Netflix streaming is great if you want to see Lifetime movies of the week or B movies from the 1970′s – you know the stuff shown on TV late at night.
It was obvious that Netflix couldn’t afford streaming and DVDs at the old price since they paid so much for the licenses they still have.
3rd party companies are never going to get a deal from the studios – they want the cash – all the cash
Regardless of all the obvious pitfalls of the new 2 company model…why in god’s name would they give the original business a NEW name, while giving the newer business the OLD name??? Talk about counterintuitive. Um…the line extension gets the NEW name. Did the Gap give its name to Banana Republic and rename itself? Did Toyota call Lexus Toyota and rename their flagship brand? Not to mention…their DVD customers (in general) are those more resistant to change, while their streaming customers (by comparison) are open to it…so their streaming customers will be more willing to adapt to a new name, while DVD customers will be more resistant. — Do they not have marketing people working in-house? Ones with an elementary understanding of their customers, and/or a little common sense?
Because there is value in the Netflix brand name and the future of the company is in streaming. It doesn’t make sense to give the brand identity to a division of the company that probably won’t exist in five years.
Obviously streaming is the future of video rental, so of course they’re going to go with their flagship brand name for that service. Maybe try thinking from a business perspective next time…
If they changed the name of the Streaming Business to Movie Stream or Stream This or StreamMonster or Whatever. All the TV Manufactures, Blu-Ray Player Manufactures, Apple TV etc. would all have to adopt the new name and Logo of the new Streaming Unit and download that new information into their Application software, New Logo as well and change all the graphics on their packaging..
A Huge Nightmare and great expense for all involved!
I’m glad they didn’t change the Name after all its Net Flix! the name is very appropriate!
As far as increasing rates for DVD/Blu-Ray Movies it should of been done over a few years 60% Increase was an insane and arrogant Move!
An apology without reparations means nothing Reed, less than nothing.
You might as well change he name to “Titanic,” because you’re just about done.
Eight hundred comments on the blog & counting. Very inconvenient & annoying.
Rich, greedy people amaze me! When is enough not enough? They had a good thing going and fucked it up. The bogus apology is a day late and a dollar short like when someone cheats on you and then apologizes for it and expects you to forgive and forget. I canceled my Netflix along with millions of others. Hastings needs to step aside before Netflix becomes a dinosaur! Oh wait! It’s too late!
It’s a non-apology apology.
He says he’s sorry he didn’t communicate better, but he’s not sorry for what he did as CEO and he’s not going to fix the problem. In fact, he’s creating a separate entity to ensure that a return to the pricing structures (never mind the pricing levels) of the past, with combined pricing for DVDs and streaming, is out of the question.
He also doesn’t address the availability problem on the streaming side, that without the Starz deal, Netflix won’t have Disney or Sony movies and thus their library will be seriously below par.
This is all baloney.
Amazing. Netflix is trying to pressure customers to ditch the DVDs, which cost a lot to ship, in favor of going streaming only.
But a BIG problem with this is that Netflix’s streaming selection is inadequate. Seriously inadequate. Out of the last twenty years of Best Picture Oscar winners, exactly one (Chicago) is currently available on streaming.
We all know that streaming movies is the future. Unfortunately, it isn’t the present. And I’m not paying for lousy selection while I wait for the future to arrive.
Exactly. The DVD business is on its way out, but the DVD customers are the seeds from which to build the streaming business, IF it ever comes up to snuff, which given the spotty library, it is not now, and given content producer resistance, may never be.
In the meantime, I either stick with DVDs or dump Netflix entirely.
Tarantino’d makes the one comment that gets to the root of the problem with Netflix streaming: content. Very astute.
Why would you obliterate your brand like this? Is the name Mailflix taken? Discflix? The marketing guys at Netflix act like they didn’t even get college degrees in marketing.
Past tense? He’s still messing up. Netflix mail as a separate brand name? Stupid. Why not just call it Netflix Mail? Still no justification for the price hike that I can see. Most still use the mail option. Not to mention, there’s still that long wait for new releases which Blockbuster doesn’t have to deal with. I loved Netflix because it was so cool and cheap. Now, not so cheap and not cool.