Netflix can’t seem to get it right.
A surprise announcement from the video rental giant saying it will be splitting its streaming service from its DVD rental business was panned yesterday in a big way by both subscribers and investors. Netflix shares ended the day down 7 percent, adding to losses that have already slashed the company’s market cap in half, by about $7.5 billion, since July, when it announced its first controversial move to raise its prices.
Netflix CEO Reed Hastings chose a blog post late Sunday to share the news that the company’s DVD service will now become a subsidiary dubbed Qwikster, raising new questions about management’s strategy.
While Netflix will continue to serve customers of its streaming video content, those who pay for DVDs by mail will now have separate Qwikster accounts and bills.
Hastings’ blog post had more than 15,500 comments attached by yesterday, many from alleged customers who questioned the strategy and said the new arrangement would mean more work for them. “You will have to market for years before people will be able to spell something like ‘Qwikster,’ ” one person wrote. “The name itself, to me, shows a lack of thought.”
The decision to create Qwikster seemed hasty — and a Twitter account had already been taken in that name by a potty-mouthed stoner. But Netflix spokesman Steve Swasey said the split has been planned for “a long time” and denied speculation that the company was moving to sell its DVD business.
“We said what we had to say, we made it very clear, and of course some people don’t like change and we understand that,” Swasey said. “It’s a tough call now, but right for the future.”
Timothy Calkins, a marketing professor at Northwestern University’s Kellogg School of Management, called the decision surprising and risky, given how much time and money it requires to build a brand virtually from scratch. Calkins noted that most companies launch new brands for new services or technology, not long-standing business lines.
“They didn’t really explain why each business would do better separately,” Calkins said.
Still, some were less critical. Brett Gordon, a marketing professor at Columbia Business School, said the corporate split was a savvy way to distance the Netflix brand from “the dying DVD business.”
The Netflix announcement came just a week after the company said it was lowering its third-quarter subscriber growth estimate by a million customers, acknowledging that pricing changes turned away business.
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