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:
Netflix CFO David Wells acknowledged today that “we’re a more humble team” following the consumer and investor backlash from a series of PR blunders. The company plans to ”step back and look at all options and what we’ll do going forward” to satisfy consumers who were angered in July when the company said it would split its video streaming and DVD rental services — increasing prices by 60% for those who wanted to continue to have both. Lowering the price doesn’t seem to be on the table. That’s “a little bit like kicking the can down the road,” Wells said at the Goldman Sachs Communicopia Conference. “I don’t think it’s going to win back the customers we lost.” Instead, Netflix likely will secure more content and “repair that trust with the consumer over time.” Defections spiked shortly after the announcement, “but it went to zero shortly afterward.” The recent decision to rebrand the DVD business as Qwikster ”introduced additional volatility into the consumer picture.” But the decision to have Qwikster also rent video games is “a signal that we’re continuing to invest and not abandon that consumer.”
The Netflix situation is becoming scary. The stock was down another 9.4% today, to $129.66. That means the company has lost 55.4% of its value since July 11, the day before it announced its decision to split the streaming video service from DVD rentals — upping the subscription price by 60% for those who still want both. Yesterday, CEO Reed Hastings apologized for his PR blunder by trying to gloss over that fact. He adding that the DVD-rental business will have a new name, Qwikster, and begin to rent video games as well. How low can Netflix go?
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.