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Netflix finds a new way to offer less service for more money by splitting off disc-by-mail rentals to a subsidiary company

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It’s been a rough week for Netflix, what with losing its rights to Starz/Disney/Sony films and a barrage of news stories about how its recent price hike is expected to cost it roughly a million customers, causing the price of its stock to drop nearly 15 percent. And then there are the reports that Netflix/co-founder CEO Reed Hastings, among other Netflix executives, are selling off significant amounts of their own stock.

Perhaps in a spirit of masochism, Hastings chose to cap the week with a post to Netflix’s blog apologizing for the way the price hike was communicated—while still justifying that price hike, and mixing in the alarming news that Netflix intends to create a separate company and website to handle its Blu-ray/DVD-by-mail service from now on. The spin-off, Qwikster (“a Netflix company”), will have its own site, which is expected to launch “in a few weeks”; current Netflix subscribers will have to go there to select films, and the site won’t be integrated with the Netflix site, which will solely handle streaming content. The bad news for customers is that there will no longer be any crossover between users’ disc-by-mail and Watch Instantly queues, ratings, or reviews, so essentially, Netflix is no longer offering a one-stop-shopping simultaneous competitor to the likes of Hulu and GreenCine; it’s creating two lesser, separate services, which will bill separately and require wholly separate use.


Hastings and former Netflix exec/new Quikster CEO Andy Rendich also posted a YouTube video (embedded below) explaining some of this. Most of its information is already in the blog post, though in the video, Hastings does say that the reason for the split is because Netflix’s DVD service is so great that it “needs its own brand so that we can advertise it.” (Because, you know, up ’til now, Netflix has had no idea how to market or advertise itself, which is why it’s always been so subtle and quiet about its self-promotion.)

The one happy piece of news in the middle of this series of what-the-hell customer-infuriating decisions (the blog post only went up an hour ago, and it’s already gotten hundreds of livid responses from site users) is that Qwikster plans to include a videogame upgrade option, where members can pay more to rent Wii, PlayStation 3, and Xbox 360 discs by mail. Depending on how they price that service—at least if it’s inline with Netflix’s current pricing structure—it could potentially work out to being cheaper than Redbox’s $2-a-day game rentals. At least until Netflix spins off another subsidiary company that just does game rentals, jacks up the membership fee, and pisses everyone off all over again. And that’s assuming this all isn’t just a strategy to quietly strip off and then ultimately shut down the DVD rental service altogether, in a way that won’t reflect too badly on Netflix, because that’s a whole separate company now.