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Netflix retreats on plan for separate DVD unit.
Netflix kills Qwikster, backtracks on DVD spinoff

October 10, 2011

By Ryan Lawler

Netflix came under a lot of heat last month when it announced that it would be separating its DVD service from the rest of its operations and renaming the business Qwikster. So now, after hearing more or less unanimous disapproval from users, analysts and investors, the company has decided to backtrack on those plans, and will keep DVD-by-mail a part of the Netflix brand and website.

Months of missteps
The debacle first began way back in July, when Netflix announced a change to its pricing that separated its $9.99 DVD and streaming plan into two services that cost $7.99 each. That led to an effective price increase of 60 percent for users that planned to continue subscribing to both services, which was met by wide-scale disapproval.

After announcing an update to its customer forecast, which lowered its expected subscriber count by a million at the end of the third quarter, Netflix CEO Reed Hastings then apologized and announced that the company was spinning out its DVD service as a standalone business and re-naming it Qwikster. That would mean a whole different website, billing relationship and ratings system for customers. The Qwikster plans made Netflix’s situation even worse, leading to even more customer unrest. (Not to mention ridicule by late-night comedians like Conan O’Brien.)

A step back, and an apology
Netflix is now announcing that it will not go through with those plans after all, and that it will continue to have a combined streaming and DVD-by-mail service and offer those services both through Users will continue to have one monthly bill, and their ratings and recommendations will carry over between the services as they always have.

The move is a concession to those who questioned the wisdom of Netflix’s recent plans, but also an acknowledgment that the company harmed its brand and relationship with users through poor communication and an apparent disregard for what customers actually liked about the bundled service: simplicity. By splitting the services and brands, Netflix added an unnecessary layer of complexity to using both DVD-by-mail and streaming. CEO Reed Hastings admitted as much in his statement issued with the press release:

“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.” But is damage already done? While most of Netflix’s recent problems have been self-inflicted, competitors are hoping to take advantage of customer disapproval of the announcements made over the past few months. Dish Network, for instance, unveiled a new streaming and DVD-by-mail offering called Blockbuster Movie Pass that it’s making available to its pay TV subscribers for an additional $10 a month. Amazon has doubled the number of streaming titles available for its Prime Instant Videos subscription service, and will likely see an uptick in video users once its new Kindle Fire tablet becomes available. And Hulu has been talking up its subscription service, saying that it expects sales from Hulu Plus will make up about half its revenues in a year.

Will Netflix’s decision to halt its Qwikster plans win back customers or get them to stick with the service? Or has the damage already been done, and will they look for alternative services elsewhere?

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