Originally Posted by BRIAN STELTER, NY Times
Netflix Abandons Plan to Rent DVDs on Qwikster
1:52 p.m. | Updated Abandoning a break-up plan it announced last month, Netflix said Monday morning that it had decided to keep its DVD-by-mail and online streaming services together under one name and one Web site.
The company admitted that it had moved too fast when it tried to spin-off the old-fashioned DVD service into a new company called Qwikster.
“We underestimated the appeal of the single Web site and a single service,” Steve Swasey, a Netflix spokesman, said in a telephone interview. He quickly added: “We greatly underestimated it.”
Mr. Swasey said that the Netflix chief executive Reed Hastings declined an interview request. But in a statement, Mr. Hastings said, “Consumers value the simplicity Netflix has always offered and we respect that. 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.”
Mr. Swasey declined to comment on any involvement by the Netflix board in the decision to keep the two services together. Netflix stock initially rose on the news, but by midday it was down about 1 percent.
In an analysts note, Ingrid Chung of Goldman Sachs credited Netflix management for “listening to its customers (finally) and working to fix its relationship with customers.”
Richard Greenfield, a media analyst for BTIG Capital, said in an e-mail message that Monday’s announcement was the “necessary reversal of a bad decision.”
“The key remaining question,” he said, “is why did they make the Qwikster decision in the first place?”
Netflix said it never actually separated the services or started Qwikster. But the Sept. 18 announcement that it intended to do so stoked anger among Netflix customers, some of whom were already incensed by a price hike to $16 from $10 for those who receive both DVDs and streaming. (That increase will remain in place.)
In a blog post that day about the plan, Mr. Hastings wrote, “Companies rarely die from moving too fast, and they frequently die from moving too slowly.” His implication was that Netflix had to act aggressively to expand its fast-growing streaming service by severing its older, slower DVD-by-mail arm.
In a sentence that now seems like a bit of foreshadowing, Mr. Hastings also wrote, “It is possible we are moving too fast – it is hard to say.”
Netflix said that day that the separation would take effect in a few weeks. But tens of thousands spoke out against the plan on Netflix’s Web site and others, and Netflix stock slid sharply.
Three days after the announcement, Mr. Hastings wrote in a Facebook status update, “In Wyoming with 10 investors at a ranch/retreat. I think I might need a food taster. I can hardly blame them.”
The planned break-up was rooted in Mr. Hastings’ and Netflix’s belief that DVDs and online streams have different cost structures and different consumer demographics.
In July, to address the structural underpinnings of the business, Netflix announced that it would start charging $8 a month for both its streaming service and its DVD service, a total of $16 a month for the combination.
Previously, DVDs were a $2 add-on to the $8 streaming service. Of course, subscribers who only wanted one service or the other — most new subscribers only want the online streams — saw no price hike, but that fact was drowned out by the outcry.
Netflix expected some of its 25 million subscribers to cancel in the wake of the price change, but the cancellation rate exceeded expectations. The company said in mid-September that it expected to report a quarterly decline of about one million in the third quarter, which ended on Sept. 30.
But that guidance was given before the break-up was announced; Mr. Swasey said Netflix would not comment on whether the quarterly losses would exceed the already-lowered expectations. The company will report earnings and subscriber figures on Oct. 24.
On Sunday night, Mr. Swasey sought to reiterate what Mr. Hastings tried to say last month when he announced Qwikster: that Netflix had failed to communicate effectively about the price changes. “We had to look at the reality of what it cost” to mail multiple DVDs to households each month, Mr. Swasey said, noting that the round-trip postage alone for one DVD cost almost $1.
Under the plan announced on Monday, the price change will remain in effect, but the two services will not be untethered. That means that subscribers who want both online streams and DVDs won’t have to manage two accounts and pay two bills each month, after all.
Netflix tried to be crystal-clear about it, issuing a press release that was titled “DVDs Will Be Staying at Netflix.com” and sending e-mails to subscribers about the news.
“Netflix said in a Sept. 18 blog post that its DVD by mail service would operate at Qwikster.com,” the press release read. “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.”
A plan for Qwikster to rent video games may or may not move forward; Mr. Swasey said it was “to be determined.”
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