Netflix launches Qwikster for DVDs

Reed Hastings, CEO of Netflix, attends a press conference to announce the Netflix service in Mexico at the St. Regis Hotel on September 12, 2011 in Mexico City, Mexico.

Kai Ryssdal: An interesting thing happened on the way to the opening bell this morning. Reed Hastings, the CEO and founder of the online video service Netflix, issued what amounted to about half an apology. Netflix stock has been getting clobbered lately, down another 7 percent today, after a series of price increases and service changes. Hundreds of thousands of people -- by some counts, a million -- have canceled their subscriptions.

So today, Reed Hastings sort of apologized, tried to explain why. And, oh by the way, announced he's going to split off the DVD-by-mail business that made Netflix famous.

Marketplace's Steve Henn reports.

Steve Henn: Netflix CEO Reed Hastings posted a YouTube video this morning along with his half apology.

Reed Hastings: We are making this video to apologize in person -- or at least on camera -- for something we did recently.

But instead of lowering prices, today Hastings announced a separate website called Qwikster, for DVD rentals. Now consumers who want to watch their movies online and rent DVDs need to go to two websites and pay two bills. This didn't please them, and it didn't please Hastings' other audience today: Wall Street.

James McQuivey is a tech analyst at Forrester Research.

James McQuivey: There is no reason he would have gone out publicly like this with a sort of mea culpa had he not been hoping that Wall Street would hear the real message, which is, look, the cost of supporting the DVD business is going to get to the point were we don't even want to do it.

Wall Street sent Netflix stock through the roof last year when its online streaming business seemed poised to take on the cable industry. But today, Netflix is struggling to maintain its online offerings, much less expand them. And it's losing subscribers, whose fees could pay for the additional content Netflix needs.

Analysts like Tony Wible at Janney Montgomery Scott says this could easily become a downward spiral.

Tony Wible: Where you could have less content, which gets you fewer subs, which equals less content.

Which is why Wible says Reed Hasting's split strategy may have made things twice as bad.

In Silicon Valley, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.
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you messed up big time! what a shame...

netflix has now lost my business. I could accept price hikes for better online service but there is no way I will pay twice for what i was already getting. the thing they can't seem to understand is there online service sucked with outdated shows and movies. maybe quicster will turn into an excellent online service but I refuse to be there guinea pig, maybe they should have waited till they actually had a plan instead of just winging it. trying not to be even more cynical this what a company does to set up a buyout to get the value down for a perspective

What are those of us who purchased a Roku box in good faith supposed to do? The box is like playing Pong back in the 70s. Pathetic. Netflix looked like the great alternative to the ridiculous hassle that renting movies had become. It's nothing more than a caricature of the business now. Let it burn and let's see what rises from the ashes. Maybe a company who values its customers and has real ethics will come to the forefront.

I can understand a price increase when compared to other online movies services prices, but the separation of services is paving the way for us to say farewell. Not only are they charging more, but now they are making it harder to use as well.

Ok folks time for a reality check. Fact is prices go up everywhere. The price and value of netflix still far outways the cost of cable/Satellite and honestly just a better option. If I have to pay more so they can improve then so be it. I look at it this way if you think you have a better option then go and do it, but wining about the price is a dead end. I will choose to wait and see what they do with the price increases and the direction they go. I for one don't see as feature rich of options elsewhere...

I found the tone of Hastings' video post condescending at best; the two men sounded like they were talking to a roomful of first graders. (Surely they realize we as customers could not care less about the 'iconic' red envelope, right??) Two websites to visit, two monthly charges to pay... Not to mention less and less bang for more and more bucks, since Starz will no longer be a partner and movies previously available instantly are constantly being pulled back to DVD-only. Someone please tell me which of these changes they expected would be GOOD for business.

I'm not interested in his motivation. The simple fact is that the price of this serveice has made an historic increase. I wouldn't be happy making two payments but I would do it. This... where is the nearest redbox?

Do people not realize the studios are increasing the price of streaming for Netflix?

It was cheap before because the studio didn't think Netflix would catch on like this. Now, the studio want their own streaming service.

This story will be repeated in 3 years once Pandora's contract with the studios renews. If they survive that long.


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