Netflix Reverses Two Website Plan
NetFlix
Netflix Reverses Two Website Plan
Netflix Inc. said Monday it was backing away from a plan to split off its DVD-rental service into a separate business, a reversal triggered by the widespread unpopularity of the original idea.
Netflix announced that it was abandoning its move to split into two business, following consumer outrage.
The Netflix stock has been battered since the summer’s announcement.
In a blog post, Netflix Chief Executive Reed Hastings acknowledged the company had made a mistake in attempting to spin off its DVD-rental service into a website called Qwikster, separate from its streaming-video service. “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,” he wrote Monday.
Netflix Angered Customers
The Los Gatos, Calif., company, which sends customers DVDs via mail and also gives them access to a catalog of movies to watch over the Internet, had angered subscribers with two recent moves.
In July, it raised the price of one popular subscription plan from $9.99 a month to $15.98 a month. Then in September, Netflix said it would spin off the DVD-by-mail service into a Qwikster subsidiary, while Netflix would remain a website for streaming video.
Angry Netflix members bashed the idea on Internet message boards, complaining it would be difficult to visit two separate websites to rent and watch movies.
Netflix Defended July Price Increase
The company in the blog post defended the July price increase and said it is “now done with price changes.” But the other plan has been scrapped. “We underestimated the importance of the integration of the two services,” said Netflix spokesman Steve Swasey. He added that the DVD division, which would have no interaction with the streaming business, would move to new offices in nearby San Jose, but that customers wouldn’t see any difference.
Investors Happy About Netflix Plans To Abandon Qwikster
Investors lauded the decision to abandon Qwikster, sending Netflix stock up about 3.5% to $121.27 in afternoon trading Monday. Netflix shares had fallen nearly 40% since the company announced the Qwikster plan last month.
Netflix has conceded that its higher prices would take a toll on subscriber numbers. In July it reported that its second-quarter earnings rose 57%, but the online video-rental company reported its costs to win customers rose from the prior quarter. It cut its subscriber forecast by 4% after it revealed the new pricing plan.
Dents In CEO Reputation
The recent moves have also dented Mr. Hastings’ reputation as being a sharp leader and ahead of the consumer curve, though analysts said his actions announced Monday are a step in the right direction. “It’s clear they were losing customers, and I’m surprised the backtrack took so long,” Wedbush analyst Michael Pachter said. “They have a lot of explaining and a lot of repairing to do” with customers.”
Netflix will no longer go forward with its dual-business split, bowing to consumer dismay. But the price increases are still a go. So far, investors are cheering the news, Peter Kafka and Rex Crum report on digits.
Netflix Moving Too Fast?
On Monday Mr. Hastings said, “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, a pioneer in the DVD-by-mail and streaming video categories may be losing the video market race. Experts believe that the current video market is moving faster than Netflix’s ability to keep up. Competition has accelerated in recent months and Netflix is facing rising costs for streaming content from Hollywood studios.
Apple Inc., Amazon & Wal-Mart Is Nipping At Netflix’s Heels
Other companies—such as Apple Inc., Amazon.com Inc. and Wal-Mart Stores Inc.—have been pushing into the video-streaming sector. Analysts say a lot of content will soon become widely available. Companies will be vying to have as much original and exclusive content as possible to set themselves apart from their rivals.
Losing customers hurts not only the company’s financials, but also Netflix’s ability to negotiate streaming contracts with content providers. If media companies perceive that Netflix is losing its relationship with customers, then they may not be as willing to grant streaming rights to the website.
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