Netflix Segregates DVD-by-Mail Business

By Frank Yu
Frank Yu
Frank Yu
September 19, 2011 Updated: October 1, 2015

Red Netflix envelopes sit in a bin of mail at the U.S. Post Office sort center March 30, 2010 in San Francisco, Calif. Netflix announced Sept. 19, 2011 that they would spin off their DVD-by-mail service into a separate named company called Qwikster, keeping the Netflix name for their streaming service. (Justin Sullivan/Getty Images)
Red Netflix envelopes sit in a bin of mail at the U.S. Post Office sort center March 30, 2010 in San Francisco, Calif. Netflix announced Sept. 19, 2011 that they would spin off their DVD-by-mail service into a separate named company called Qwikster, keeping the Netflix name for their streaming service. (Justin Sullivan/Getty Images)
NEW YORK—Netflix Inc., the movie rental and online streaming company, has formally segregated its DVD-by-mail business from the online movie streaming business.

The Los Gatos, Calif.-based company will rebrand its DVD-by-mail business to Qwikster over the next few weeks, to reflect the speed at which it delivers DVDs to its customers.

In addition, current DVD-by-mail customers will log onto a new website to access that portion of their plans.

Netflix will contain the business operating online streaming of movies and television programs. Current customers who subscribe to both will have two separate line items on their credit card bill, the company said.

In conjunction with introducing this shift, Netflix Chief Executive Officer Reed Hastings sent an email to subscribers, apologizing to them on the way the company communicated its decision to split into two offerings.

Netflix faced customer backlash following its initial announcement, and its shares have subsequently decreased on the Nasdaq Stock Market.

“The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD-by-mail service,” Hastings wrote in an email to subscribers on Monday morning.

Beginning as a mail-order video rental company, Netflix has shifted its resources toward online streaming of content with the advent of broadband Internet and their impact on television programming.

While the success of its DVDs business eventually forced the bankruptcy of video rental chain Blockbuster Inc. last year, Netflix faces substantial competition in the online video streaming industry—including Hulu and Amazon.com. Blockbuster also announced that it would introduce an online video streaming service next month.

An addition to its Qwikster DVD-by-mail service is the inclusion of video game rentals, which customers have long clamored for.

Some analysts felt that Netflix’s decision to wholly separate its businesses means that it would spin off the Qwikster unit, or sell it to another company, in the future. "We see little reason to create a new brand unless Netflix was intending to ultimately spin-out the Qwikster business," Morgan Keegan analyst Justin Patterson wrote in a research report Monday.

 

Frank Yu