Netflix Apologizes, Renames By-Mail Business 'Qwikster' -- But Keeps Price Hike

Sun Sep 18, 2011 6:23pm EDT

Netflix CEO Reed Hastings admitted Sunday night that the company fumbled its handling of recent price hikes to its most popular subscription packages. 

However, the embattled home entertainment chief stopped short of scrapping the higher costs.

Instead, he said the company would split its DVD-by-mail business from its streaming service and re-christen it Qwikster.

So basically, Netflix keeps its unpopular price increase and will now force customers to subscribe to two separate services in place of one. Talk about a cup of salt with that tablespoon of sugar.

In his apology on the company blog, Hastings seemed to say all the right things -- even if his actions may leave some customers even more ticked off. 

Also read: Netflix's Streaming Dilemma: Too Fast, Too Cheap, Maybe Out of Control

"In hindsight, I slid into arrogance based upon past success," Hastings wrote. 

"But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do," he added. 

Hastings' unorthodox mea culpa comes in the wake of customer outrage that saw many members make good on threats to abandon the service over the higher prices.

It also comes just days after shares of the company plummeted on news that Netflix was shaving down its projected subscriber numbers for its upcoming quarter.

There will be no further increase to the already announced price hike for using both the company's streaming service and its disc business, but members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix, Hastings wrote. 

Andy Rendich, Netflix's chief service and operations officer, will be the CEO of Qwikster.

One downside of the renaming and separation is that the websites will not be integrated, meaning the popular customer review feature that gives users suggestions for films to watch won't translate across platforms. 

Even Hastings wrote that the change could be jarring: "For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive 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 the same for many of you."

To help cushion the blow, Qwikster will offer users videogames via an upgrade, similar to the one Netflix subscribers can opt for in order to get Blu-rays. 

Netflix has made no secret that its future financial health depends on transitioning subscribers from the costly DVD by mail business, where postage eats up profits, to the relatively cheaper streaming business. It appears that Hastings has used a crisis to accelerate that shift. 

Indeed, Netflix is now a streaming only company. DVD lovers, get ready for Qwikster. 

Here's a video featuring Hastings and Rendich explaining the new platform:

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