NB: Thread may not be relevant to non USians... Recently I received an email from Reed Hastings, CEO of Netflix. No I am not special. Every Netflix customer got this email. In this email, personally addressed to me from Reed Hasting's own personal "email@example.com" email (ha) Mr. Hastings apologized for their recent price hike and told me I am owed an explanation. After explaining something I had honestly stopped caring about weeks ago, Mr. Hastings then told me something very, very odd. Netflix is dividing itself into two separate websites: Netflix streaming, and "Qwikster." OK, I think. Stupid name, no reason for this, but whatever. Then it gets annoying. I have to go to Qwikster's separate website to set my "Qwikster" queue, and Netflix's website to set my Netflix streaming queue. Now this, actually, is very annoying and pisses me off, unlike the minimal price hike that really blew over after a day or two, and that I would have forgotten about had Netflix not gone and rekindled that episode by doing something even dumber. Needless to say there were a lot of stories about this. E.g., from Reuters: Spoiler : Netflix's Qwikster Move: Hard-Headed Business, Not Greed 5:42am EDT Netflix subscribers are reaching for the tar and feathers over the companys decision to split the business in two: a streaming model and now a separate DVD-by-mail service. But furious customers ought to know: the man with the red envelope had no choice. Also read: Netflix Chief Dogged By Miscues But Still Counting the Stock Profits The price hike and corporate splintering wasnt a case of greed-- it was a hard-headed business decision, however clumsily executed. If Netflix continued offering an all-in-one package of streaming and DVD at a steep discount, it would be joining Hollywood Video in the home entertainment graveyard. Netflix was bleeding money because of higher content and postage and costs, studio executives and analysts tell TheWrap. The company was shelling out as much as $1.50 in fees to the studios each time it mailed out a disc. That figure doesnt even account for the money the company was spending to mail its films to customers; a cost that will likely rise while the postal service continues to hike up shipping costs as Americans grow ever more comfortable with online shopping. Also read: I'm Quitting Netflix For the former all-inclusive price of as low as $9.99 per month, that could quickly turn into a losing proposition. While streaming licenses used to be a relative bargain for Netflix , those days are gone as content providers extract what they see as their rightful share of the digital pie. Whereas a deal to stream films from Disney and Sony via Starz had formerly carried a tolerable $30-million-a- year price tag, the cable company just walked away from a pact some pegged as worth $300 million annually. For the privilege of carrying movies from Lionsgate and Paramount, Netflix pays out $200 million a year to the cable channel Epix, and that doesnt even take into account the service's recent move into original programming beating out HBO and Showtime for a costly little curio called "Game of Cards," that sports the combined and expensive pedigree of Kevin Spacey and David Fincher. Also read: Netflix Apologizes, Renames By-Mail Unit 'Qwikster' -- But Keeps Price Hike Though streaming is no longer cheap, it is clearly where the future lies. To enforce the logic it now must pursuebuilding the subscriber base online and slowly choking off the mail modelNetflixs painful and much-loathed decision was probably necessary. Theres another upside. By spinning off the DVD-only subscribers from the streaming users, Netflix is cutting down on the amount of money it shells out for digital content. The fees it pays to stream movies are calculated on a per-subscriber basis, much as they are for pay-TV companies, so treating the groups separately will drive down costs. Wall Street has been brutal in its assessment of the manner of move: Michael Pachter, an analyst with Wedbush Securities, told The Wrap, its the dumbest thing Ive ever seen. But studio executives say not to bet against Netflix, its co-founder and CEO, Reed Hastings, or the underlying rationale. Reeds brilliant, a studio executive told TheWrap. It could be hes hastened the demise of [Netflixs] DVD business and it works out for his shareholders perfectly. Thats not to say that Netflix didnt misstep in the way it rolled out its new subsidiary. Mixing the launch with a mea culpa to consumers about price hikes robbed Qwiksters debut of sizzle and was evidence that Netflix has a major messaging problem. You want to introduce a new product with great fanfare, not a dated name and an apology, Howard Belk, co-president and CEO of the global strategic branding firm Siegel + Gale, told TheWrap. Belk said the moniker dredges up unpleasant memories of dated Internet brands. Other analysts groused to TheWrap that Netflix should have experimented with a riff on its current name such as NetflixDVD or Netflix By Mail, instead of striking out in a new direction. It harkens back to Friendster and Napster, things that are passe, Belk said. To me Qwikster connotes a slipperiness. Also, as the recent blow-up with the pot-loving owner of the Qwikster Twitter handle shows, its probably best to have all the ducks, or in this case profiles, in a line prior to launch. Heres the good news. Even as Netflix struggles to get costs under control, studio executives tell TheWrap the subscription service still stands a chance of expoliting a number of potential new revenues. In particular, video-on-demand offers enormous upside for a company that boasts one of the best platforms for online video and millions of movie-loving users. To work, it would require studios to loosen the 30-day delays many have imposed on Netflix for new releases, but some of the majors are willing to lift the restrictions for the right price. Theres lots of stuff they can still be doing to broaden their film offerings, one studio executive said. In some respects, the fault lies with Netflix, which the executive said has been more focused on building its subscriber rolls and less intent on breaking into the VOD business. Theres also more the company could potentially do to piggyback on UltraViolet, the cloud based video anywhere platform launching in the fourth quarter of this year. Theres no reason Netflix couldnt integrate titles its customers already own onto its platform and make recommendations based on subscribers film libraries. Like Pandora, the company could also potentially integrate UltraViolet sales into its site, creating a one-stop shopping experience for cinephiles and adding both value and profits to the service. If the company can finally get control of the mounting public relations disaster, all that red could quickly turn to green. Related Articles: Netflix Chief Dogged By Miscues But Still Counting The Stock Profits Netflix's Qwikster Announcement Leaves Subscribers Angry and Analysts Cold What do you guys think? Is this part of a move to actually kill off Netflix's apparently money-losing DVD by mail albatross? It certainly made me think about canceling my "Qwikster" subscription that I will be automatically enrolled in once the split happens. I mean the name is dumb enough, but I really don't want to have to go to two web sites to deal with what is essentially the same activity--my wife and I are bored and want to watch a movie, and plan for what we want to also watch later. And the other dilemma--in my experience Netflix's streaming content has been less than desired. Unless they substantially beef up their offerings with this move I fail to see how this makes any sense whatsoever, unless Mr. Hastings is actually some sort of Judo-business master using his mad CEO skillz in a totally genius way that flies right over my little pea-brained head. What are your thoughts? Annoying? Awesome move? Re-opening old wounds and then pouring salt on them? By the way, "his" email to "me:" Spoiler : Dear ******, I messed up. I owe you an explanation. 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. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing. For the past five years, my 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. It wouldnt have changed the price increase, but it would have been the right thing to do. So here is what we are doing and why. Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies. I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite 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. So 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. Its hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to Qwikster. We chose the name Qwikster because it refers to quick delivery. We will keep the name Netflix for streaming. 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. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. There are no pricing changes (were done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready. For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you. I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly. Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions. Respectfully yours, -Reed Hastings, Co-Founder and CEO, Netflix p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.