Netflix Inc is separating its movie streaming business and its DVD by mail service, which will be called Qwikster, Chief Executive Reed Hastings said in a company blog post.
Andy Rendich, who has worked at Netflix's DVD service for 12 years and has been leading it for the last four years, will become the CEO of Qwikster, Hastings said.
The streaming business will retain the brand "Netflix," according to the blog post.
Netflix's move follows the company's decision to increase the monthly subscription for a joint streaming and DVD rental service by as much as 60 percent that caused an uproar among customers and bloggers. Netflix shares have fallen sharply since the price increase was announced.
"I messed up. I owe everyone an explanation," Hastings wrote in a blog post.
Hastings said streaming and DVD by mail were becoming two quite different businesses, with very different cost structures. He also added that these two businesses offered different benefits that needed to be marketed differently.
"We need to let each grow and operate independently," Hastings said.
Hastings assured there would be no pricing changes and members who subscribe to both services would have two entries on their credit card statements, one for Qwikster and one for Netflix. The total amount would be the same as the current charges.
Members who subscribe to both services will have two entries on their credit card statements. Instead of Netflix, the distinctive red envelopes will now say Qwikster.
It's a risky bet. The amount of streaming content the company offers is still far less than the number of DVDs in its catalog. And competition, from Hulu, Amazon, Coinstar's Redbox kiosks and other services, is growing. Netflix could even alienate customers further by asking them to now deal with two separate websites and accounts instead of just one.
The changes come as the company faces increasing scrutiny from customers and shareholders over the decision announced in July to separate its mail order and Internet streaming services into two separate plans. The change raised the prices for users who want both services, by as much as 60 percent for some.
Last week, Netflix lowered its U.S. subscriber forecast for the third quarter and the former stock market darling's shares took a beating as a result.
In his blog, Hastings said he "slid into arrogance based upon past success" when he did not adequately explain the reasons behind the plan separation and effective price hike.
Explaining the reasons behind the plan change "wouldn't have changed the price increase, but it would have been the right thing to do," Hastings wrote.
Netflix announced its move just as the once-mighty Borders Inc. shuttered the last of its bookstores around the country. Hastings' blog post seemed to take heed. He said that for the past five years, his "greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming."
"Most companies that are great at something — like AOL dialup or Borders bookstores — do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices," he wrote.
Hastings said the DVD service will be the same as ever, "just a new name." But customers will see a video games upgrade option for game rentals on the Qwikster website. Andy Rendich, who has been working on Netflix's DVD service for 12 years, and leading it for the past four years, will be the CEO of Qwikster.
Hastings also said it will add "substantial" streaming content in the next few months, and reassured that there are no more pricing changes.