Netflix hasn’t been having a good time as company as of late. After announcing a price hike, Netflix stock took a steady beating. In fact, at the time of this writing, the company stock is half as valuable as it was this past July. Netflix decided on the price change after realizing that its ability to stream video is a much more profitable business model and renting DVDs by mail is nearing its end.
Now, Netflix is making even more changes – drastic changes. In a few weeks, the DVD-by-mail service will be split off into a new company called Qwikster. The name Qwikster was chosen to imply the speedy delivery and turnaround time of movie rentals. Qwikster will also introduce something new to the Netflix brand: video-game rentals. This portion of the service will function similarly to the Blu-Ray package add-on and will cost a little extra. At this time, no price details have been given for the video-game add-on.
The name Netflix, will now be used on in connection to the instant streaming service that has become so popular. The two services will also be featured on two completely different and unrelated sites. Zero communication will be performed between Netflix and Qwikster.
Pricing for both the Netflix and Qwikster services will remain the same. While the splitting of the services could prove disastrous, who knows what damage a further price change could do?
Netflix CEO Reed Hasting described the reason for the split. He says he realized that the streaming services and DVD-by-mail service were becoming very different. The customer bases were changing and the services required the marketing of different benefits. In order for both services to function well and grow, they would need to operate separately.
In short, the split will allow each company to focus on its core competencies and market to more specific customer segments.
He says he realized that the streaming services and DVD-by-mail service were becoming very different. The customer bases were different and the services required the marketing of different benefits. In order for both services to function well and grow, they would need to operate separately.
While I understand that Qwikster was chosen to represent fast delivery, I feel like a better company name could have been chosen. The name Netflix, now, is very self-descriptive and clearly represents online movie streaming. Qwikster, on the hand, communicates that something is quick, but that thing is unknown.
While the split may not sound all that complicated, there will be some downsides. As I’ve already mentioned, the Netflix and Qwikster sites will not be integrated. This will require members of both sites to update queues, change information, and rate movies two separate times. Also, one of the nice features of the original Netflix was the ability to see if movies on your DVD queue were available on Instant. This will definitely not be the case anymore. Personally, I can’t imagine many people will want to take the time to manage two accounts that serve such a similar purpose.
I can’t imagine this announcement is going to cause many positive reactions. I’m curious as to how investors will perceive this move: will they see it as paying off in the end or as a forewarning of failure? Re-branding two separate products seems like the wrong choice to me. Netflix has such great brand recognition and it is partially going to waste in favor of Qwikster, which is unfamiliar and odd.
Also, how is this going to play out for the movie companies wanting to use the services. Are two negotiations now required? Will some movies be offered on Qwikster, but not Netflix? Only time will tell.
I’m truly hoping that this was the right move for Netflix and they haven’t dug themselves into an even deeper hole.
Lastly, on a funny side note, the blogosphere has pointed out that @Qwikster on Twitter leads to a user with questionable morals who feels no need to hide them. He and his friends have also realized that he is sitting on a hot account. Too bad selling Twitter username is against the rules!