Netflix splits streaming & DVD business – CEO says he messed up
Posted By RichC on September 19, 2011
After talking with a few disgruntled NetFlix subscribers (and ex-subscribers) this morning, I can attest that I’m not the only one thinking “spin-off” after CEO Reed Hastings relays the news that their new DVD-by-mail service will be a dying “wholly owned subsidiary” being called Qwikster.
Netflix Inc. Chief Executive Reed Hastings said in a blog post the company is separating its movie-streaming business and its DVD-by-mail service, to be renamed Qwikster, a move he said was the undisclosed impetus for a recent price increase that
outraged customers and sent the company’s stock price plummeting.
According to Mr. Hastings, he “messed up” when making changes to the existing subscriptions … which angered many users and shareholders alike. (NFLX stock declined from $300/share to nearly half the July 2011 high in 2 months).
Two months ago, Netflix said it would change its pricing structure so that its by-mail and online offerings were essentially sold separately, each starting at $8 a month. Previously customers who got movies by mail and online paid less for the combination than the offerings cost separately.
The change effectively raised many subscribers’ monthly charge by 60%, to $16 from $10. Last week, in light of negative reaction to the price increases, the company cut its subscriber forecast by 1 million, or 4%. In response, Netflix’s share price plummeted 19%.
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Here’s the email letter broadcast to NetFlix subcribers:
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