Splitting the business: Netflix by mail becomes Qwikster while Netflix becomes a streaming only service

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Remember the Netflix price changes that got everyone upset? For many, the new prices went into effect a few days ago. Netflix decided to respond to the outrage late yesterday with an apology… and what can only be described as the world’s most confusing business decision.

You can read the official announcement here but it’s rather long so let me give you the tl; dr version. Netflix is going to change their signature service, DVDs by Mail, to an entirely new separate company called Qwikster and add an option to upgrade your account for a fee to also rent video games by mail (which, may I add, Blockbuster by Mail gives you in their base price without the need for an extra fee). The original Netflix brand will become a streaming only service. I actually read this the first time through with the assumption this was just a joke, this idea seems so out of left field.

Complaints are already rolling in. People are mad that they’re making things twice as complicated. They’re mad that the two proposed site will be run like totally separate businesses with very little integration and info sharing between the sites. (No sharing reviews and ratings between DVD and streaming? What sense does that make?) How this will actually work in practice remains to be seen but it certainly does seem like they made an already unpopular decision and made it even worse.

From a business standpoint, I can’t help but think that most customers would have forgiven the price increase in time but now you’ve given them a second thing to be upset about instead of just letting them quietly come to terms with it. While splitting the business may have been the right decision in the first place, they should have announced this with the price change, not afterwards like it’s a consolation when it really just makes the issue that much more complicated. When your customers are freaking out about a change, changing something else is rarely the way to fix it.

The one good thing in all of this is, as a customer who was dropping DVDs by mail for a streaming only existence, I felt even better about this decision after reading this update. The fact that the streaming service is the one that keeps the Netflix brand name says that they see that service as the future and are throwing their weight behind streaming to a greater extent. It gives me hope for even better streaming selection and service in the future even if I find the rest of the decision to be incomprehensible.

But that’s just me. What do you think? Does this announcement make things better or worse in your mind?