Netflix to split into two separate companies. Wait, what?

Sept. 19, 2011 | by James Bickers

I awoke this morning to a friendly, "personal" email from Reed Hastings, the co-founder and CEO of Netflix. "I messed up. I owe you an explanation," he says, before level-headedly explaining the rationale for a business move that is either madly brilliant or just plain mad. (Click here to read the complete letter, along with the 12,000+ user comments already posted.)

As I learned in my February interview with Netflix's Steve Swasey, the goal for the company all along was to become a streaming provider. As he pointed out, it would have been much easier to launch the company with a name like "DVDs By Mail" or something similar. Consumers 10 years ago would have much more intuitively grasped what the company did.

But no, "net" was in the title from the beginning because this was always meant to be an online, streaming service. And now that it is, and that portion of it is so successful, the company is splitting in half: Netflix will be the streaming part of the business, while the newly dubbed Qwikster will be the DVDs-by-mail company.

From the Department of Why This Might Actually Be Brilliant: There's a market for DVDs by mail, because there will always be a much, much larger selection than are available for streaming at any given time. Also, there's the cinephile community, which has sustained the movies-by-mail service Facets for decades. Finally, streaming is a dead issue for those without broadband, and we are still a long way away from having affordable and reliable broadband everywhere.

From the Department of Oh No We Didn't Consider That: User outrage, just a few hours after the email went out, has been deafening. Under the new plan, the total fees from the two accounts will add up to the same amount (for now), but users will have to maintain two separate accounts and profiles. So, Netflix's much-ballyhooed ability to offer up suggestions based on what you've enjoyed in the past will effectively be broken. Also, the name Qwikster is silly, conjures up images of other poorly regarded websites ending in "ster," and is unfortunately already associated with this fellow (profanity, possibly NSFW).

(An aside about that last link: The year is 2011. What business in their right mind launches a new company without checking on and/or securing the Twitter name? That's the equivalent of not securing your dot-com addresses 15 years ago.)

Later in his email, Hastings says this:

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

Fretting about whether or not the envelope I get in the mail has a Qwikster logo vs. the familiar Netflix one is the very definition of "first-world problem." But people do care about these things, just as they get very passionate about the brands they use. That passion cuts both ways, and many Netflix customers have felt for some time that the company just does not care about what works for them and what they want from their entertainment dollars.

So I'll put it to you — was this the right move for the company? If you were Hastings, what would your next steps be?

Topics: Consumer Behavior , Customer Experience , Marketing , Omnichannel / Multichannel

James Bickers / James Bickers is the senior editor of Retail Customer Experience, and also manages webinars for Networld Media Group. He has more than 20 years experience as a journalist and innovative content strategist, with publication credits in national, international and regional publications.
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