Netflix Splits Into Two Companies

Netflix is splitting into two companies — one to handle its online streaming business and one to handle DVDs by mail.

Copyright © 2011 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MICHELE NORRIS, host: From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

The CEO of Netflix issued an apology to its customers today. Reed Hastings admitted that his company messed up when it announced a price hike a couple of months ago.

As NPR's Laura Sydell reports, he also used the moment to announce another major move: He's breaking the company in two.

LAURA SYDELL: In his blog post, CEO Hastings says from now on the company's service for mail order DVDs will be called Qwikster.

MICHAEL PACHTER: I think it's about the dumbest thing I've ever seen. The separate websites are dumb and I think the lack of integration is dumb.

SYDELL: That is Wedbush analyst Michael Pachter. He's one of many analysts who think that Netflix has made a terrible mistake. About half of the company's 24 million subscribers have an account for both its mail order DVD service and online streaming. Those customers will now get separate bills, and they won't be able to visit the same website to see what movies and TV shows are available, says Pachter.

PACHTER: It's kind of the cardinal rule of marketing that you do not make it more complicated for the customer. You always make things easy. You know, think Amazon one-click ordering and, you know, this is equivalent I think of Amazon getting rid of one click.

SYDELL: And what's worse, says Pachter, is that the creation of two separate parts of the company comes just after Netflix ticked off many of its customers with a price hike.

Two months ago, you could spend 10 bucks and get both services. Then, Netflix changed the price plan. Customers had to pay $8 for the streaming service and another $8 for mail order DVDs. Netflix announced that they've lost a million customers over the price hike and they may be about to lose more.

Maybe even Tommy Moanhay(ph) from Burbank, California. He has both the streaming and mail order service, and he's on the verge of quitting.

TOMMY MOANHAY: They want me to go to two separate websites to get both services that I had on one website. I just don't understand that.

SYDELL: Still, most analysts agree that the future for movies and TV series is online. Netflix was one of the first to start streaming over the Internet. But now it's struggling to keep its customers happy. Take a show like "Damages" with Glenn Close. Netflix's streaming media customers can only see the first two seasons. On its website, there are already posts from frustrated customers who want seasons three and four but they can't get it.

(SOUNDBITE OF TV SHOW, "DAMAGES")

UNIDENTIFIED MAN: We're in the news every day.

UNIDENTIFIED WOMAN #1: Look at this. Frobisher's lawyer called us greedy in the Wall Street Journal.

UNIDENTIFIED MAN: On CNN, he said we're the blood suckers.

UNIDENTIFIED WOMAN #2: I warned you the media war was coming. Now, here it is.

SYDELL: In Netflix's media war, it's fighting Apple, Microsoft, Hulu, DirecTV, Blockbuster, and a host of other competitors who are ready to take away frustrated Netflix customers, says Forrester analyst James McQuivey.

JAMES MCQUIVEY: A public apology from your CEO at a time when all of your competitors are circling like sharks is a little dangerous, to come out so publicly and then not solve the problem for which you're apologizing.

SYDELL: So, the price hike isn't going away, and it's going to get more complicated to manage the DVD service and the streaming service. On top of that Netflix is about lose access to a bunch of Hollywood movies. One of its most important content partners, Starz, which has Sony Films, has just said it will end its contract with Netflix.

It's no wonder that today on Twitter there was a promoted tweet from Blockbuster that said: Netflix customers, seeing red? We have the newest releases.

Laura Sydell, NPR News, San Francisco.

Copyright © 2011 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: