updated 07:45 am EDT, Mon September 19, 2011
Netflix drops physical movies from core business
Netflix chief Reed Hastings in a statement late Sunday revealed that the company was forking its traditional physical disc service out under the Qwikster name. All Blu-ray and DVD rentals will now go under the new banner while Netflix is reserved solely for Internet streaming. While the service will give users two account locations, it should also provide a route for significant improvements now that disc rentals have a dedicated team, Hastings said.
The first change would be a long-requested addition of video games. Subscribers will have the option of paying extra for PS3, Wii, and Xbox 360 title rentals similar to a service such as Gamefly, albeit without the ownership option. More extras would be coming, Netflix's CEO said.
Costs for upgrading to games haven't been detailed, but prices are expected to remain the same when Qwikster is ready in the next few weeks, with any existing DVD rentals split off on a separate bill. "We're done with that," according to Hastings.
DVD operations head Andy Rendich would be the CEO of Qwikster.
The revelation was also accompanied by an apology. The company founder explained that he hadn't been "extra-communicative" and considered that his main fault. He admitted that even the Qwikster decision might be "moving too fast" but justified it by promising "substantial" additions to streaming. It was better to move too fast than to move too slow, he said, taking an indirect jab at companies like Starz or movie studios that were trying to shelter their physical movie businesses.
"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) because they are afraid to hurt their initial business," the CEO wrote. "Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly."
The deal is as likely to be a hedge against any changes in DVD rentals. The recent price hikes, which charge as much as $16 for a mix of DVD and streaming access, has led some to cut back and choose the $8 streaming-only option. Qwikster will let Netflix operate its Internet streaming more independently even if discs are no longer sustainable. The Internet component is already as much as 64 percent of US digital video, according to NPD figures, beating out pay-per-title services like iTunes as well as newcomer subscription options like the Internet Video component of Amazon Prime.