Netflix Spins-Off DVD Mail Service Into "Qwikster", Will Offer Game Rentals

It's been a tumultuous few months for Netflix, plagued by price increases, controversy, and plummeting stock prices. From announcing the split of their streaming and mail-order DVD rental services, to essentially doubling their prices for the latter in the US, even losing several lucrative contracts with providers such as Starz, confidence -- both from the side of the consumer as well as for investors -- have been on the decline as of late.

In their latest attempt to save face, Netflix will be spinning off their DVD mail service entirely into a new company called Qwikster. The new brand will have a separate website, separate queues, even separate ratings from Netflix, which will become a streaming-only service. For now, subscriptions won't change.

Netflix CEO Reed Hastings on the upcoming changes:


Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

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 feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.

The biggest surprise in all of this has to be that Qwikster will also feature video game rentals, a first for the company. Game Fly and other services dominate video game rentals in the United States, so it will be interesting to see if an established company can take advantage of existing market share to enter a new segment, or whether they'll be plagued with the same problems other companies face -- lack of stock, availability for handheld platforms, etc -- in competing with Game Fly.

Hastings on the format of the "new" 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 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, and now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow.

Another advantage of separate websites is simplicity for our members. Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the renaming and separation is that the and websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.

There are no pricing changes (we’re done with that!). Members who subscribe to both services will have two entries on their credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges.

The most compelling part is of course Hastings' pledge that the company is done with price increases.

But one has to wonder whether forcing customers to visit two websites, pay for two services separately is nothing more than a hassle. People like things to be easy, uncomplicated, simple, and this change seems anything but that.

Netflix has been horribly mismanaged this year, but one has to wonder whether we can really blame them. They got a really good deal from providers early on, and now that companies that produce realize that Netflix is killing their business, they're either hiking up prices to exorbitant amounts, or pulling out entirely and setting up their own services. It's bad for consumers, bad for Netflix, bad for everyone. How Qwikster entering the fray will alter any of this remains to be seen, but it's an interesting time in the world of digital distribution and video rentals.

For our Canadian readers: no changes have been announced for Netflix Canada at this time (which remains a streaming-only service).

Source: Netflix