Netflix sent a statement and video message today (Sept. 19) to all of its subscribers apologizing for the “lack of respect” in the way it unexpectedly announced it would be separating its DVD and streaming services and upping its prices.
The company also announced it will be renaming its DVD-by-mail service Qwikster.
“I messed up,” said Reed Hastings, co-founder and CEO of Netflix. “I owe you an explanation.”
In July, Netflix took a bold step toward making streaming its dominant rental method by announcing with little explanation a new pricing plan that separates DVD rentals and movie streaming into separate accounts, unless customers pay more.
Previously, the basic Netflix subscription provided DVD rentals (one disc at a time) and unlimited streaming, with more expensive options for two discs or Blu-rays. Now unlimited streaming is in a subscription all by itself, at $8 a month, and single-disc subscriptions are also $8 but do not provide streaming access.
Customers can still subscribe to plans that provide both DVDs and streaming, but those plans are now $16 and up. For those who only stream or use DVDs, this actually makes a Netflix subscription a bit cheaper, and Netflix says that was one of the reasons behind this decision.
However, the pricing and rental strategy surprised and outraged many subscribers.
“It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes,” Hastings. “That was certainly not our intent, and I offer my sincere apology.”
Hastings explained that he feared Netflix 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),” Hastings said. “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. It wouldn’t have changed the price increase, but it would have been the right thing to do.”
Reed noted that the benefits of its streaming service are different from the benefits of DVD by mail.
“We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD-by-mail service,” Hastings said. “We realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.”
In the next few weeks, Netflix will be renaming its DVD-by-mail service Qwikster, a name chosen as a reference to its quick delivery. Netflix will refer to its streaming service.
“Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies,” Reed noted, adding that the sites will not be integrated.
Netflix also aims to add a video games upgrade option, similar to its upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games.
For those who subscribe to Netflix and Qwikster, there will be two entries on their credit card statement. However, the total will be the same as their current charges.
“There are no pricing changes (we’re done with that!),” Hastings said.