Netflix splits DVD rental and streaming business

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Screen shot of, a new website service available soon from Netflix. Netflix Inc. plans to separate its DVD-by-mail service and streaming video businesses. Photo - AP Photo/Netflix Inc.

Netflix has split its DVD-by-post business from its movie streaming service. While the streaming service will retain the Netflix name, the DVD-by-post service will be renamed Qwikster. This move has set another rounds of harsh complaints from the customers, which piled up on the company website after the release of the news. Many were upset or confused by the splitting of streaming and DVD businesses.

Two months earlier, Netflix increased the price of the combined renting and streaming service by 60%. This move enraged its customers with many of them switching to other services. In July, Netflix reported that it had about 25 million subscribers.

The latest news resulted in a 7.4% drop in share prices. The company’s share price has declined to almost 50% following the July price rise. According to analysts, the announcement could cause more cancellations of monthly Netflix subscriptions. The company stands to risk more subscribers, as the Qwikster and Netflix websites would not integrate the services.

Netflix boss Reed Hastings said he was separating the units because they were evolving as two different businesses that needed different marketing strategies. Netflix has been under pressure from Hollywood studios and cable operators to pay more for the content. Analysts believe that the firm would start to lose streaming films from Walt Disney Studios and Sony Pictures Entertainment after failing to reach a negotiation with the premium cable channel of Liberty Media?s Starz.

Hastings posted a blog in a bid to calm down Netflix?s customers and explained the reasons behind the changes. He pointed out that problems evolved with the DVD rental business due to customers? preference of watching movies via the web.

Netflix CEO wrote: “Streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”

After the split, customers will be charged for each service they use and their bank and credit card statements will show separate payments. In addition, any feedback they give on good or bad movies via one service will not be mirrored on the other.

Meanwhile, DreamWorks Animation has completed a deal to deliver its films and television specials through Netflix, replacing HBO. The deal spans over an unspecified period and is worth $30 million per movie. Competition is also fierce from the likes of Apple, Amazon, and Vudu, a streaming service owned by Wal-Mart. Dish Network, which helped Blockbuster out of bankruptcy, announced a Blockbuster-branded streaming and DVD-by-mail service. Media analysts feel that in the short term, it will call for a better price for the content which might bring changes in consumer behaviour in the long run.

Sources: Reuters, BBC, Economic Times

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