Netflix's Qwikster Over Before It Starts

Netflix has put the kibosh on its Qwikster spinoff, which would have split the Internet movie rental company into two businesses, the former handling online video streaming and the new unit designated for the original DVD-by-mail service.


Much like the first plan, announced in a Sept. 19 email to customers, the Los Gatos, Calif., company issued another email to customers telling them the plug had been pulled on the new unit.


“It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs,” the email stated. “This means no change: one website, one account, one password … in other words, no Qwikster.”


While the September email announcing the change was signed by CEO Reed Hastings, the latest simply signs off “Respectfully, The Netflix Team.”


Even before the announced changes, which would have forced customers to deal with two websites and receive two separate invoices if they chose to keep both the streaming and DVD services, the company announced a price hike, which left customers cold. The latest email promises the pricing structure is locked in.




“While the July price change was necessary, we are now done with price changes,” according to the email.

The fate of the video game rentals, alluded to in the September email, is unclear. Qwikster was to offer an optional upgrade for video games, setting up competition against other services such as Redbox and the games-only rental service Gamefly. Qwikster will offer Wii, Xbox 360 and PS3 games.

Netflix now touts its streaming selection. “We've recently added hundreds of movies from Paramount, Sony, Universal, Fox, Warner Bros., Lionsgate, MGM and Miramax,” the email says. “Plus, in the last couple of weeks alone, we've added over 3,500 TV episodes from ABC, NBC, Fox, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel, TLC, SyFy, A&E, History and PBS.”


The email ends: “We value you as a member, and we are committed to making Netflix the best place to get your movies & TV shows.”


Barbara Apple Sullivan, founder and managing partner of brand engagement firm Sullivan NYC, says has Netflix made the right marketing decision to recombine its DVD rental and streaming businesses under the Netflix brand.


“They clearly listened to the market and made the move to cut their losses,” Sullivan tells Marketing Daily. “This is similar to Gap's move to re-establish their old identity when they received negative feedback on their new identity. Listening to your customers is always a good thing.”


Sullivan nevertheless says she’d recommend that investors avoid Netflix for the time being. “I think these moves show that this management team has no idea what it's doing,” she says. “They clearly made the decision to split what they perceived to be two businesses into two brands for internal reasons, without doing enough customer research up front.


“They didn't understand the equity they had in the Netflix brand, or that the business they are in goes well beyond media format and distribution channel.”


Many brands that distribute a wide range of products and services in myriad channels -- including Target, Apple and Blockbuster -- don't alter the brand based on the channel in which it is distributed, she says. “Netflix's decision to recombine the two businesses seems to have now been done obviously hastily, with little homework -- again,” Sullivan says.


“These are people who don't know what they're doing.”


However, Goldman Sachs analyst Ingrid Chung wrote in an Oct. 10 report that the company's decision to abandon plans to separate its DVD-by-mail and streaming businesses will have positive effects on subscriber trends. The reversal shows "management is listening to its customers (finally) and working to fix its relationship with customers," Chung wrote.


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