Netflix Kills 'Qwikster' DVD Spinoff

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Netflix Kills 'Qwikster' DVD Spinoff
Much-Maligned Plan To Split Company Reversed
Logan Burruss and David Goldman

Posted: Monday, October 10, 2011 Updated: 2:56 pm CDT October 10, 2011

New York (CNNMoney) -- Netflix is going back to the future. The digital video delivery company said Monday that it is reversing a plan announced only weeks ago to spin off its DVD-by-mail business from its streaming video service. CEO Reed Hastings announced on Sept. 18 that the company's movies-by-mail service would be rebranded as Qwikster and would add video games to its catalog, while the Netflix brand would be dedicated to streaming video. Now Netflix is abandoning that plan. "Instead, U.S. members will continue to use one website, one account and one password for their movie and TV watching enjoyment under the Netflix brand," the company said in a statement.

Netflix issued its second mea culpa in as many months, acknowledging the consumer outrage about its Qwikster announcement. "Consumers value the simplicity Netflix has always offered and we respect that," Netflix co-founder and CEO Reed 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." The company had already lost an estimated 1 million customers, or about 4% of its subscribers, after Netflix split its DVD and streaming businesses in July, effectively raising prices on subscribers of both by 60%. Analysts said the company's second 180-degree turn indicates that even more customers were saying, "So long, farewell, auf Wiedersehen, adieu" to the business.

"Basically, these guys are desperate, and this confirms it," said Tony Wible, analyst at Janney Capital Markets. "While this move doesn't solve the company's long-term issues, in the interim, at least it can try to accelerate some positive catalysts for customers and its stock price." Shares of Netflix rose by as much as 10% following the news, before turning negative in the afternoon. For investors, the problem with spinning off the DVD-by-mail service is that it accounts for between one-third and one-half of the company's overall sales, depending on which analyst you ask. (Netflix doesn't break out those statistics in its earnings releases).

It also would have eroded a competitive advantage. "Netflix has a major leg up on its competition, because it offers library titles via streaming and any title with a two-day delay through the mail," said Brett Harriss, analyst at Gabelli & Co. "By separating them, Netflix would have allowed Apple and Blockbuster to compete with each portion of its business separately." For consumers, the Qwikster spin-off would have been a royal pain: Customers would have needed to maintain two separate accounts on two different websites. Netflix, a company that could do no wrong up until this summer, seems to have heard those customers loud and clear after its second blunder. "Netflix is the latest poster child for what happens when you aggravate consumers," said Tobe Berkovitz, professor of advertising at Boston University. "When you have a brand that consumers have a good relationship with -- and Netflix was certainly one of those -- consumers take a ton of flesh if you betray them."

Copyright CNN 2011

[JamesG]

Netflix's Decision to Cancel DVD-Streaming Split: What the Industry, Consumers Are Saying
10/10/2011
by THR staff


Netflix's announcement Monday that it was nixing its recently announced plan to separate its DVD-by-mail from its Web streaming business prompted instant reaction from the industry and consumers.

The company said it had made its decision not to create Qwikster.com for DVD rentals in the wake of negative feedback from customers and Wall Street.

After trading higher during the first half of the day, shares of Netflix on Monday hit a new 52-week low and closed down 4.8 percent as initial excitement over a strategy reversal waned.





Upon the announcement, several in the entertainment industry took to Twitter to share their reactions:


"Somewhere in the world, Qwikster is huddled in a dark, neglected corner crying into his New Coke."
-"Lost" co-creator Damon Lindelof



"Next time Netflix wants to make a rash, impulsive decision, maybe they should just buy a puppy or get a tattoo. #RIPQwikster"
-Weird Al Yankovic



"So...Netflix has changed nothing, except now has everything under the Netflix name on one website?"
-Roger Ebert





"Hey Netflix, can you get my parents back together? They separated in 1989."

"New sign in the Netflix break room: 'Wanna get fired? Just mouth the word Qwikster.'"

"I do believe that Qwikster has just supplanted New Coke on some upcoming Trivial Pursuit cards."

"(Psst, everyone. Listen. Let's start demanding that Netflix deliver cakes too. They do whatever we say!)"
-Movie Critic Scott Weinberg





"I'll say this for Netflix: It sticks to its guns. And then shoots itself in the feet with them. And then changes guns. And shoots again."
-Director Jason Snell



"Dear Netflix CEO: We Accept Your Apology. Love, DVDs."
-Mashable.com's Pete Cashmore









Non-Celebrities also had their voices heard:


"Why didn't Netflix market research their 2-company idea before trying to do it?! Now they look twice as foolish reversing course."
-Monique Hall



"Netflix is making an a--hat of itself. It's actually getting funny now."
-Aaron Bender



"The REAL problem with #Netflix isn't their lack of business direction. It's their lack of Magnum PI streaming online."
-Brent Okuley



"Looks like Netflix got the right idea and killed Qwickster. I'm glad they figured out that you don't try to fix something that's not broken."
-Kait McDaniel



"As Netflix clearly has shown, brands are defined by the consumer. Not the other way around."
-Cheryl Smithem



"Netflix and Its New Coke Moment. ... Coke had a stronger brand."
-Bala Iyer



"Wow. Netflix is really confused. May I suggest consumer testing before springing major changes on people. Regardless I'm still a HUGE fan."
-Zizwe

http://www.hollywoodreporter.com/new...indelof-246277