Netflix (Nasdaq: NFLX)is renaming its iconic DVD-by-mail operation "Qwikster," a move it hopes will help it recover from a PR gaffe that has resulted in lost subscribers and a stock price that has plunged off the table in recent weeks.
CEO Reed Hastings, in a letter to subscribers and in a blog posting, said the company had "messed up" when it announced it was splitting its DVD delivery business and streaming video service and establishing a new price for each; customers who wanted to keep both were told they'd have to absorb a 60 percent price increase.
"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," Hastings said. "That was certainly not our intent, and I offer my sincere apology."
The company plans to offer games in addition to movies via mail, and said the name change and additional games service will launch in the next few weeks, using the same red envelopes it has in the past.
The streaming business will retain the Netflix name.
Hastings said operating the businesses separately would allow them to each grow independently.
In his letter, Hastings said the decision to originally begin diverging the two businesses was fraught with concerns that Netflix could struggle to create and sustain its streaming businesses. He pointed out two companies, AOL and bankrupt Borders bookstores, as businesses that had struggled to evolve from their core businesses as consumers demanded it.
"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," he said. "Most companies that are great at something--like AOL dial-up 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."
Netflix last week revised upward the number of customers it lost due to the price change, and saw its stock price tumble 26 percent in two days.
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