Too Little Too Late? Netflix Apologizes and Splits

The last few months have been pretty rough for Netflix. After an announcement about a price increase, news broke concerning the end of their contract with Starz, and a technical glitch created rumors that they were changing their rules mid-stream.

That’s quite a bit of trouble in a very short time frame.

Realizing that their customer’s were becoming less enthusiastic, if not out-right disgruntled, Netflix published an apology from their CEO and co-founder Reed Hastings.

The apology, which was emailed to customers and made available on the Netflix blog, expresses Netflix’s concern over the recent downturn in customer morale. Hastings does a good job of taking ownership of the lack of clear communication concerning the changes in the Netflix business model.

Hastings goes on to explain that the change in the pricing structure is about more than the money. He sees Netflix’s growth in DVD delivery versus its growth in streaming as two separate entities. And while this bifurcated development may have developed naturally at first, Netflix is now intentionally dividing the two.

Netflix will remain the name of the streaming service, but the DVD delivery service is being renamed Qwikster. Hastings is quick to point out, though, that your DVD’s will still arrive in their signature, red envelopes (seriously, Reed?).

The websites for the two services will also be separated, which commenters on the blog post have quickly pointed out as a terrible idea for subscribers of both services. Without integration of the two sites, there won’t be an easy way to see if the movies in your Qwikster queue are available for streaming on Netflix or not.

The only positive piece of this announcement that I can see is the addition of video games to the Qwikster service. It’s an add-on, of course, but it will allow subscribers to have video games mailed out, similar to GameFly. (I wonder what their take on this is.)

To read the official announcement and the long and growing comment discussion, take a look at the Netflix blog post.

[Update] Bill Gurley has some interesting insights over at AboveTheCrowd.com.