Netflix Abandons Plans To Divide Into 2 Divisions

Three weeks ago, Netflix announced it would split off its online streaming service from its DVD rental business. But after a lot of customer complaints, the company has done a complete turnaround.

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RENEE MONTAGNE, HOST:

Netflix has abandoned plans to break its business in two. It was just three weeks ago that the company announced it would separate its online streaming service from its business of renting DVDs. But after an outpouring of complaints from customers, Netflix has done a complete turnaround. NPR's Laura Sydell joined us to discuss what this means for Netflix's 24 million customers and the company.

And Laura, what reason did it give for canceling the plan to break itself into two divisions?

LAURA SYDELL, BYLINE: Well, basically, Netflix customers got a note from Reid Hastings, the CEO, and he says it is clear that for many of our members two websites would've made things more difficult, so we're going to keep Netflix as one place to go for streaming and DVDs. That means no change. And they are no longer going to start this separate company called Qwikster, which was the name of the company that was going to be for DVD through the mail. So Qwikster had a quick demise.

MONTAGNE: And Netflix continues, though, to lose business right?

SYDELL: Yeah, they definitely seem to be losing business. I mean, there were so many complaints when they did this. Because essentially if you had a subscription to the DVD mail service and the service where they streamed videos, you could get them both and go to the same website, the same queues, all of that.

And so you were going to have two different websites, which kind of violates the basic premise in business, which is you don't want to make things more complicated for your customers. So they did that, even though half their customers got both. And somehow they seemed to miss that that might really bother those customers.

MONTAGNE: OK. Well, Netflix admits it made a mistake. How badly will this affect the company's business?

SYDELL: Well, they've had a pretty bad run here. Three weeks ago, they made the announcement that they were going to split in two. Now, when they made that announcement, it was actually part of an apology for the price hike they did two months before that.

MONTAGNE: Hmm. OK.

SYDELL: And that was unpopular too, OK? And so they were apologizing for that, and in the midst of this apology they decided they were all going to split into two. So their customers were not happy. And a lot of people did seem to be resigning. We don't know how many. But it didn't look good.

MONTAGNE: All of which makes one wonder what is going on over there at Netflix.

SYDELL: Right. What were they thinking? Well, no one is certain. But part of it is simply Netflix, I think, trying to move into the world of streaming content, which is where it's all going.

And I think part of it was they might've been trying to take the mail business and move it off to the side so that they could sell it separately and get more money to buy more content.

This is a really competitive marketplace. So you've got Amazon coming into this marketplace. You have Google moving into this marketplace. Potentially Apple. All of these people are going to be bidding on content that Netflix also wants. That's going to raise the price. They need extra cash. They don't have as much cash as Amazon.

So I think that was part of it. But obviously it wasn't working because they were losing customers. And that certainly doesn't help them bid and get content.

MONTAGNE: Laura, thanks very much.

SYDELL: You're welcome.

MONTAGNE: NPR's Laura Sydell.

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