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Opinion: Is Netflix DVD move ahead of the curve?

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In what is arguably a questionable move, Netflix Inc. has made the decision to separate its streaming and DVD services not only in name but also in location.

Likely coming in October, the DVD portion of the service will be rebranded as Qwikster, with rentals available at Qwikster.com. The streaming service, however, will keep the Netflix name and continue to be available at Netflix.com.

What this means is that Netflix customers who subscribe to both the streaming and DVD services will have to visit two separate Web sites. They will receive two separate billing statements. And that friendly red envelope of DVDs in the mailbox no longer will contain the accompanying Netflix text, but instead will be adorned with the Qwikster moniker. Qwikster users also will have the option to rent Nintendo Wii, Playstation 3 and Xbox 360 games by mail, territory currently dominated by video game rental service GameFly.

Maybe these aren’t deal breakers, but they certainly are an inconvenience.

In July, Netflix made the precursor to this change when it separated the pricing of its streaming and DVD services. Netflix began offering a DVD-only plan, $7.99 per month for one DVD out at a time, $11.99 a month for two DVDs out – and the packages went up from there. Previously, the company’s unlimited streaming and DVD services had been coupled into a single package – $9.99 per month for streaming and one DVD out at a time, for instance. Because Netflix put in place the DVD-only scenario, that pricing moved up to $15.98 per month to reflect the cost of the separate plans for streaming and DVDs.

With news of Qwikster coming down the pike, it now has become clear why those changes were made.

In a Sept. 18 blog post – that rather sheepishly begins, “I messed up. I owe everyone an explanation.” – Netflix CEO Reed Hastings apologizes for the company being unclear with its intentions back in July.

“It is clear from the feedback during 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,” he wrote at Blog.Netflix.com.

It seems fitting to give credit where it is due here and commend Hastings for apologizing, though he should have anticipated the flogging the company could receive from separating – by months – the news of the pricing changes and Qwikster. Perhaps that was a way to soften the blow of the full spectrum of the move, but regardless, an apology could have been avoided had a full explanation been given up front.

Separating DVD services from the Netflix name could prove fruitful for the company, as, by Hastings’ own admission, “DVD by mail may not last forever, but we want it to last as long as possible.” As physical media may very well be on its way to extinction, Netflix could be positioning itself to take its streaming service, along with its recognizable name, into the future, leaving DVDs to go the way of the dinosaur.

Fittingly, Hastings cites the Borders bankruptcy, suggesting it can be a folly for a company not to focus on new things people want for fear of hurting the company’s initial business. For Netflix, this means a streaming push and the separation of what Hastings notes are becoming two very different businesses.

“Eventually, these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover,” Hastings wrote. “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”

It is certainly too soon to tell, but Netflix could be setting itself up to sell off the DVD side of its business or placing it aside to peacefully let it die. The separation of the two services is hardly pleasing fans, so it seems likely that some other play is afoot. Whatever the outcome, the Internet will be watching, and it likely won’t miss a beat.

Springfield Business Journal Web Editor Geoff Pickle can be reached at gpickle@sbj.net.[[In-content Ad]]

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