Netflix Splits Off DVD-By-Mail Service, Renames It Qwikster And Adds Video Games

Netflix hasn't had a good time as of late. Its stock took a hammering after it revised its subscription projections following a controversial price increase. The latter move was largely seen as a bet on the future of the streaming business, and an acknowledgement that DVDs-by-mail as a business model is on its way out the door.

Now it looks like more changes are coming to the service. Netflix will be splitting off its DVD-by-mail service. The new service will be called Qwikster and will also include video games. But how will customers react? Read on to learn what we know.

In a post on the company blog, Netflix CEO Reed Hasting shares some frank reflections on the state of his business:

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly. When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

Hastings goes on to acknowledge his "arrogance" (a rare feat for any billionaire) and explains the reasoning behind the upcoming changes:

[W]e 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. 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". We chose the name Qwikster because it refers to quick delivery. We will keep the name "Netflix" for streaming.

He adds that video games will be available at the Qwikster site via an upgrade option similar to the Blu-Ray add-on at the current Netflix site. Pricing for both services will remain the same for now. Hastings argues that this split will allow both sites to better focus on their respective core competencies.

At first glance, this didn't sound like that big of a change. Sure, the new name and logo would take some getting used to. But it would just be the same service under a different name, right? Further reflection (and a glance at the angry Facebook comments underneath the post) made me realize that there are indeed some significant drawbacks to the plan. As Hastings himself readily acknowledges, "A negative of the renaming and separation is that the and websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn't show up on Netflix, and vice-versa."

In other words, users will be losing integration between DVD and streaming queues (which they've become accustomed to over the past few years) and gaining...the ability to rent video games? I'm sure that over time there will in fact be functions added on to both sites that make this change worth it for both users and Netflix. But until those are unveiled, I'm guessing this move will create even more dissension within the site's already restless customer base.

Below you can find what looks like a hastily produced announcement video:

Discuss: What do you guys think? Will you be subscribing to Qwikster?