Netflix Splits In Two -- The DVD Business Will Be Renamed Qwikster

Reed Hastings with DVDsYes, the Qwikster envelopes will still be red.

Netflix is renaming its traditional DVD-by-mail business Qwikster and will run it as a separate business.Netflix CEO Reed Hastings announced the change on the Netflix blog on Sunday night. Andy Rendich, who has been running the DVD business for the last four years, will become CEO of Qwikster.

Both businesses will still be part of the same company — this is a branding change, not a full spinoff. Netflix announced plans to make the split in its last earnings call.

But the name change highlights the fact that Netflix sees its future as streaming.

The company is facing pressure from Wall Street after lowering subscriber expectations last week. The company’s stock plunged almost 20% the day after the revision.

The revision was mainly about the DVD part of the business — Netflix dropped subscriber expectations from 15 million to 14.2 million for the quarter. It also lowered streaming subscriber expectations slightly, from 22 million to 21.8 million.

Netflix dramatically raised prices for DVD-plus-streaming customers in July, and this has apparently driven some customers away. But a lot of analysts argued the loss of DVD customers isn’t that bad — it actually means that Netflix is taking bold steps to avoid the classic innovator’s dilemma, and cannibalising its current successful business to bet on the future.

In his blog post announcing the change, Hastings apologized for the way Netflix announced the changes: “members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes.”

He also explained gave a good explanation of why Netflix is doing this — it doesn’t want to become the next AOL or Borders:

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. Eventually these companies realise 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.

When Netflix is evolving rapidly, however, I need to be extra-communicative. This is the key thing I got wrong.

By the way, the Qwikster envelopes will still be red. Only the logo will change.

And yes, Qwikster is kind of hard to say out loud.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.