Netflix launches Qwikster for DVDs

Steve Henn Sep 19, 2011

Netflix launches Qwikster for DVDs

Steve Henn Sep 19, 2011

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.

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