Reed Hastings responds to criticisms and announces Qwikster

Netflix should be able to walk and chew gum at the same time. There are a lot of successful companies that are much more diversified than Netflix is right now. This honestly strikes me as a panic driven move in response to the customer rage and their precipitous drop off in stock prices.<p>I'm trying hard but can't see the upside to this move. And I think this will cause a big hemmorhaging in profit for the short/medium term. Netflix has 12 million members that are on both the DVD and the streaming plan. These are the folks that got the 60% price hike. Although Netflix lost some customers (~5%) after the pricing change, that massive price hike put them in a position to increase profits, even with less members..<p>But now that Netflix is splitting itself in two, I can guarantee you a sizeable chunk of people who were just happy with the dual plan will end up picking one or the other.<p>That being said, I like that they're tackling video games. They ought to take a serious look at getting into competition with Steam, which is making $1Billion in revenue and growing, with high profit margins.

This is not something you see CEOs write every day. Hell, this isn't something you see CEOs write ever in their careers. It took a lot of guts to write it, and regardless of the huge controversy surrounding their pricing strategies, I hope that this split succeeds.<p>Also, video games!

While they seem to be going to great pains to be genuine and upfront about what they're doing, why does Netflix need to create a separate company in order to innovate? Apple doesn't have a separate Mac and iPhone business and they seem to innovate just fine.<p>What really seems to be going on is that Netflix is getting ready to spin off its DVD business. That this seems so obvious makes the repeated apologies feel like an insult to our intelligence.

May be this is the wrong decision, may be it is the right decision - it is quite unclear and only time will tell. However, from an entrepreneurial perspective, Reed has all my respect - it is incredibly difficult to disrupt yourself and he has certainly placed his bet. That takes balls and I respect that.<p>As to why separate, I assume that from an operational perspective it makes running the businesses easier. It is strange that some things e.g. ratings, accounts, etc. will be separate though, that's for sure.<p>I can't wait to see this play out!

To me, the classiest thing about this post is how Hastings is taking the time to personally respond to the blog comments. You don't see that very often from a CEO of a company as large as Netflix, and it's pretty darn cool.

I really, really liked the way Hastings wrote this post. It takes a lot to own up to your mistakes, but he seems dedicated to making Netflix succeed, and the decision to split the service into two is really... interesting, to say the least. I'll probably stick with streaming and forget about physical media, to be honest. It's much more convenient to drive to the Redbox down the street than wait a few days and have to deal with mailing discs back and forth.<p>Kind of glad to see video game rentals coming; too bad they're late to the party and will have to compete with Blockbuster, Gamefly, and Redbox.

To anyone who reads this from the Netflix team:<p>I love Netflix. And so my following criticism is intended to be constructive. The email and blog post that Reed sent out today starts off well...<p>"I messed up. I owe everyone an explanation........I’ll try to explain how this happened."<p>However, after writing the above, Reed doesn't really give an explanation, and based on my colleagues' and other commenters' reactions so far, it seems to have come off as a smug non-apology. Rather than a wordy but empty-ish post, what you should have written about the overall price increases was a simple explanation at how your sourcing costs have increased. You might think that since that information is public, and geeks like us already know about it, but the majority of your customers might not be as news-savvy. And on the DVD side, explain to your customers some of the challenges that you are facing there, how they have become different from the streaming side, and why you needed to separate the businesses. (I personally don't really understand this one - the only reason I can think of for the clean separation is if you wanted the option to sell off one of the businesses later).<p>I believe people would have been more sympathetic had you given a simple, honest explanation of your challenges, especially after starting your post like that.

I was skeptical of this move at first, but I think the argument is fairly sound. I think a lot of commenters are focusimg on the technical aspect of the service and I agree, Hastings is being disingenuous when he says "they're two totally different businesses". What I think makes a sound argument is that they require a separate marketing approach.<p>Streaming is only a separate business model insofar as there are fewer degrees of freedom because of the studios; otherwise it's just a difference in how you deliver data. But that difference could be important from a marketing perspective. As Netflix pushes the streaming model, they risk damaging the DVD business by association. So it may be better to rebrand DVD business and carry it forward with a message concentrated around its (rather massive) benefits. That move is even more important if streaming becomes more competitive im the near future; war between cable companies, studios and streaming companies seems pretty likely, so the streaming space may become even more dangerous even while the conflict extends the life of DVD delivery.<p>So yeah, probably about as sound as a business decision can be. It may not work out but that's not guaranteed avoidable under the old setup either.

I have to say, I think they blew it with this one. Spinning DVD-by-mail off into a separate business might make sense, but I just don't get splitting the ratings/suggestions up by not integrating the services. Considering that one of Netflix's greatest strengths is the (very good) rating system this is a questionable decision, and I think they'll catch a lot of heat for it from the crowd that maintains accounts on both services.

This move is uncomfortable but necessary. The two businesses are different at every level (supply chain, cost structure, technology, user experience, etc.), and the DVD business is on its way out over the nest 3-5 years.<p>Better to disrupt yourself now than wait for some upstart to do it and react.

I bet the Quixtar (Amway) folks will object to this name.

As long as they are splitting the company, why not in three pieces, with a separate movie rating/recommendation service? That way both the separate DVD rental business and the streaming business could make web service calls to the recommendation service. As long as people "joined" their identities on Quickster and Netflix streaming, then customers of both services get better recommendations.<p>The "third company" might also make revenue from additional companies wanting a high quality recommendation system. Doing recommendation well is very difficult.

I can't see how this is a good decision. Their streaming service is cheap but lacks titles. I use DVDs to get the shows and movies I can't get from the streaming service.<p>Obviously streaming is the future but the DVD part generates profits. The streaming only service - if it truly stands alone - is soon going to be competing with Amazon, Google, and Apple but without as much cash as these companies.<p>With their stock's price drop maybe Google or Apple will be willing to buy them. I don't see them surviving on their own without being bought out.

I think the challenge for Netflix here will be to disassociate Netflix with DVD rentals. People will go to Netflix's website, and expect their DVDs to be there alongside their streaming movies.

Maybe they should have considered who already has the Twitter handle before they settled on the name:<p><a href="http://twitter.com/#!/Qwikster" rel="nofollow">http://twitter.com/#!/Qwikster</a>

I bet a lot of customers evaluate Hulu and Redbox now.

I'm surprised they din't register the domain quickster.com as well. The QW in qwickster is cute, but it's easy to misspell.

Roll out an "Import my recommendations" API integrated with IMDB and Amazon and Qwikster and other rateable sites, and you might have no trouble. Otherwise this is a very serious regression.<p>The customer wants one interface to rule them all, not to care about the leaky parts within.<p>For the next trick, sawing the millions of babies in half...

Must have been a though move to make.<p>Renting out DVDs is a different business model and one that will be obsolete in 2-3 years. Putting DVD rental prepares them for a future where they can fade out or sell the DVD business and go abroad with a simple offer for the Netflix brand.

Let's hope Netflix can compete without having to splatter advertisements throughout the stream.

dvdflix would have been a more appropriate name

Aren't there some synergies they would be missing out on by splitting into two companies? For instance, their recommendation engine.

+1 to Mr. Hastings, sheerly for the courage and grit it took to write that.