A Netflix By Any Other Name: CEO Apologizes, Splits DVDs From Streaming Video


Reed Hastings co-founder and CEO of Netflix (NFLX) began the blog he posted Sunday with an admission. "I messed up," he wrote. "I owe everyone an explanation." Along with that explanation, he unveiled significant changes to the way Netflix operates, and announced a new set of services from the company, but the message may do little to calm customers or investors.

Reed explained that he hadn't meant to show a lack of "respect" to customers when he split the premium content firm's DVD and streaming offerings and set new higher prices. He said he believed it was right to separate the two businesses because one -- streaming -- is a growth business, while the DVD segment is no. He blamed himself for generating the extremely negative customer reaction. "In hindsight, I slid into arrogance based upon past success."

The DVD and streaming businesses will be split into two, at least as far as customers are concerned, with The DVD operations to be renamed Qwikster. "We chose the name Qwikster because it refers to quick delivery," Reed wrote. "We will keep the name "Netflix" for streaming.' Qwikster will add video game rentals to its DVD-by-mail service, and other "improvements" will come later, he said.

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The action probably won't satisfy customers who dropped Netflix because of recent price increases, but at least the split will not bring another one. "There are no pricing changes (we're done with that!)," Hastings wrote. He closed his blog with the acknowledgment that it would take time for customers to recover from their reaction to price increases and the way they were announced. "Both the Qwikster and Netflix teams will work hard to regain your trust."

This CEO mea culpa is likely to do even less to satisfy Wall Street. On Sept. 15, Netflix revised guidance for its third quarter. The forecast for the company's subscriber base at the end of the period went from 25 million to 24 million. Netflix said its financial guidance for the quarter remained unchanged

In response, Wall Street punished Netflix shares, dropping them from $210 to $155 in two days. A blog post and a name change won't change that.

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