Netflix is separating its DVD rental service from its online streaming unit and apologizing for the handling of a price hike which upset many subscribers to the popular video service.Chief executive Reed Hastings made no change to the new pricing scheme, which resulted in a whopping increase for many customers, but apologized for the communications surrounding the move."I messed up. I owe everyone an explanation," Hastings said in a letter to subscribers posted on the Netflix blog late Sunday.
"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," he said. "That was certainly not our intent, and I offer my sincere apology."
Netflix announced in July that online streaming and DVD-by-mail service that previously cost subscribers $10 per month will jump to $16 monthly. Subscribers can also opt to sign on for one service or the other for $8 a month.
Hastings said the DVD service would be renamed Qwikster "because it refers to quick delivery" and Netflix will be used for video streaming. Customers who get both will receive two separate charges."Streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently," he said.
"Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies," Hastings said.The Los Gatos, California-based Netflix also said it would be adding videogames to Qwikster offerings.Youssef Squali of Jefferies said Netflix's move is intended to "extend the life of the company's cash cow, which is rapidly becoming a declining business, while clearly separating its growing streaming offering."
Netflix shares tumbled recently when its subscriber forecast for the United States for the third quarter was cut from 25 million to 24 million and they fell again on Monday.
Netflix shares shed 7.37 percent on Wall Street to close at $143.75.