The State of Netflix: From the Mouth of Founder/CEO Reed Hastings

Seems like Netfilx has been in a rough patch as of late. First the rate changes, now the split from Starz Entertainment, and now a rebranding?? We already know that Netflix will continue to stream movies (though they’ll be short 1000+ titles when their contracted Starz catalog agreement expires in Feb 2012) but now there’s a name change as well as the addition of video games to their library??

Sounds like there’s a lot more going on under the hood so it prompts us to wonder what does the future hold for this mighty giant killer? Well, in a surprise email this morning I, and every other person with a Netflix account, read this state of the union from Netflix Co-Founder and CEO Reed Hastings. For those of you at all curious, have a look at what Mr. Hastings has to say…

Dear Marc,

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 wouldn’t 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.

It’s 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 (we’re 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

It takes a lot for a CEO to come out during a time when no matter what he does his company is taking heat. But it sounds like they still have our best interest (and their wallets, let’s be honest) at heart. If you would like more disclosure, Hastings has posted a slightly longer explanation along with a video posted on the Netflix blog, where, should you feel strongly enough, you can also post comments.

As a Netflix subscriber for almost a decade I’m not ready to jump ship after so many years of great service just because the company has hit some waves. But I can understand how it might be the breaking point for some people. On the plus side those balking at the rate changes should be happy there will be no further price tampering. But this split media arm has me scratching my head (and it makes less sense when the issue is illustrated brilliantly by The Oatmeal). I for one am not too interested in games but am really not fond of now having to set up 2 separate queues (one for DVD/BDs through this Qwikster and one for streaming). But let me ask you all.

What do you think of the state of Netflix? How about the very open letter? What do you think about the Streaming/Disc split?? Anyone going to to stay with the company a little longer and see how this all fares??

  • Toshi

    So I bought a Netflix account for my Mom one Xmas. She loves both streaming & the DVDs. Now I have to make her choose betwn NFLX & Qwikster?

    • MarcC

      Well if she wants both streaming AND discs (with the hassle of 2 accounts and two bills) she’ll have to get both otherwise, yes, choose one service.

  • Because I’m a smartass on my own site…..I thought this was a joke. Then I got my copy of the letter. WOW. Quikster? Really? I actually use both services so I guess I don’t mind, but I’m not sure I agree with the need to rebrand.

    • MarcC

      Funny, I thought it was a joke too:P Splitting off like that is a way to get people to stay with Netflix even after the price/content changes…It lets you have the services you want (whether you prefer disc, streaming or both) so I guess that gives people more options as far as content. But I’m not wild about having two accounts especially if my money is going to one place. Yeah I don’t agree with that rebrand either.