The flip-flops continue at beleaguered Netflix. CEO Reed Hastings says today in a blog post that “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password … in other words, no Qwikster.” He says that Netflix is sticking by its decision in July to raise prices by 60% for subscribers who want to continue to both stream videos and rent DVDs, but adds that ”we are now done with price changes.” The consumer backlash to that new pricing kicked off a three-month period during which Netflix’s market value fell by 60% — about $10B. The company said last month that it expected to report that its 3Q subscriptions would be about 1M lower than it had projected. Hastings hoped to stop the bleeding on Sept. 18: He apologized for the way he announced the price increase and unveiled his plan to give the weakening DVD rental business a new identity. The newly renamed Qwikster would add video game rentals to the mix and have its own CEO, Andy Rendich. “Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail,” Hastings said at the time. “It is possible we are moving too fast — it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States.” Lots of consumers, though, found the arrangement confusing, while investors wondered whether Hastings was simply preparing to sell his DVD rental business.
Wall Street was reassured by today’s announcement, which comes just as some analysts say that Netflix’s share price is low enough to consider buying again. The stock is up more than 7% in early trading. Just prior to Netflix’s announcement one of its toughest critics, Janney Capital Markets analyst Tony Wible, upgraded his recommendation to “neutral” from “sell.” He says that “Management is under immense pressure to revive interest in the stock and will likely use 3Q11 earnings to rebuild confidence any way they can, especially if they are looking to sell the company.” Netflix will report its 3Q earnings on Oct. 24. Goldman Sachs’ Ingrid Chung says that while “today’s retreat from separating the websites shows how little testing had gone into the launch of Qwikster, we believe that the more humbled management team will be more thoughtful going forward.” Lazard Capital Markets’ Barton Crockett calls the decision to drop Qwikster “clearly, a good idea” but adds that it isn’t enough to make up for the declining popularity of DVDs, and Netflix’s price hike. He adds that the company’s “very visible waffling also likely dinged domestic momentum near-term.”
Here’s today’s release about the end of Qwikster:
LOS GATOS, Calif., Oct. 10, 2011 /PRNewswire/ — Netflix, Inc. (Nasdaq: NFLX) today said it will not rename its DVD-by-mail service and that its U.S. members will continue to go to the Netflix website for both unlimited streaming and unlimited DVDs.
Netflix said in a September 18 blog post that its DVD-by-mail service would operate at Qwikster.com. Instead, U.S. members will continue to use one website, one account and one password for their movie and TV watching enjoyment under the Netflix brand.
“Consumers value the simplicity Netflix has always offered and we respect that,” said Netflix co-founder and CEO Reed Hastings. “There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case.”
Netflix today informed its U.S. members in personal emails and a post on the Netflix Blog on http://blog.netflix.com/.