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Is Netflix's renaming strategy with Qwikster enough to save its stock and customer credibility?



qwikster-launch.jpgIsn't this the kind of stuff that CEOs get paid big money to avoid?

Netflix walked into a buzzsaw with customers earlier this year, changing its pricing strategy so folks who wanted to rent DVDs by mail and use its online streaming service had to pay more. Eventually, Netflix admitted losing 600,000 subscribers and saw its stock price drop 19 percent, dipping another 8 percent when the subscriber losses were announced.

So now CEO Reed Hastings has sent a message to subscribers which begins like a lover in the doghouse looking for forgiveness. "I messed up. I owe you an explanation."

reed_hastings_netflix.jpgHastings goes on to say that Netflix is separating its DVd rental business from its streaming business and calling the DVD business Qwikster.

This, of course, is what they should have done from the very beginning. Savvy customers still would have realized they were jacking up the price for two services which used to have one, low fee. But at least there would seem to be some structural change for the price hike beyond wanting to make more money and force subscribers to phase out using the rent by mail service.

Netflix's 600,0000 subscriber question is obvious: Is this enough to keep it from looking like the biggest ingrate in the online media world?

I'm thinking not. Like any jilted companion, its going to take flowers and candy to win us back, even if you want to stay friends.

Which means this new Qwikster better come with enough new account discounts that Netflix is essentially extending its old pricing structure for six months to a year for customers.

Otherwise, I think we're gonna start looking into seeing other people. And that stock price is gonna keep reaching down.

Look below to see the rest of Hastings' message:

netflix.jpg"It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

netflixlogojpg-41413eb8ac4febc2.jpgSo we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the and websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

[Last modified: Tuesday, September 20, 2011 8:49am]


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