The Netflix/Quikster

Debacle

Table of Contents
Executive Summary...............................................1
Introduction ....................................................2
The split decision ................................................2
The Letter ......................................................3
The Death of Qwikster ............................................5
The Recovery ...................................................7
Conclusion .....................................................8
Recommendations ...............................................8
References ....................................................10
Reed Hastings Original Letter .....................................11
Hastings End of Qwikster letter ....................................12
Primary Research Assignment .....................................13

Executive Summary
Netflix was started in 1997 on the basis of using the internet to rent DVDs by mail. It
was set up as a monthly subscription service allowing for the rental of DVDs with no late fees,
simply mail the DVD back when you were done using it and they would send you the next DVD

The Netflix/Qwikster Debacle

on your list. Using this business model they flourished in the industry, passing many milestones
as well as their competition.
In the summer of 2011 there was a misstep in planning and communication that initiated
a period of decline for the company. It started out as a vision by Netflix CEO Reed Hastings to
focus on the more profitable streaming side of the business and start the process of phasing out
the DVDs by mail. His interim solution was to split the company into two separate entities.
Netflix would remain and be designated for only the online streaming services. The mail in DVD
service would be moved to a new service called Qwikster. Qwikster would have a completely
separate website and billing service. Along with splitting the company there was to be a
combined 60% price increase compared to before the split.
Consumer and investors alike responded negatively to the announcement of Reed
Hastings splitting Netflix and their services. Over 800,000 customers unsubscribed during a short
time period. Stock prices plummeted from $298.73 before the announcement to a low of around
$50 almost a year later. Many customers took to social media and the internet to express their
displeasure at what was happening.
In an early attempt to subside the madness, Reed Hastings posted and emailed a letter to
the world and all of Netflixs current subscribers. In this letter he apologized for the confusion
and tried to explain why he and the company were splitting the company and creating Qwikster.
They letter was not accepted by consumers as anticipated and, in fact, made the situation worse
for Hastings and the company. Acting out in anger and disapproval, more people unsubscribed
and stock prices fell again.
Only three weeks after first announcing the plan to implement Qwikster, Hastings
decided to kill the plan before it could do any more damage. This was a step in the right direction
but the damage had been done and trust in the company was lost by many. It took Netflix almost
a year to start to show modest signs of recovery and to get their subscription totals to start
climbing once more.
In the aftermath of the Qwikster debacle and downfall, Netflix did recover. Hastings
listened to the outcry of the consumers and investors and was able to change the course of the
company and turn things around. Subscriptions did start to go up and Netflix started to explore
other opportunities such as creating their own original and exclusive content just for Netflix. This
was a huge success for the company and resulted in the stock prices shooting up past pre-crisis
amounts.

Introduction
Netflix, the increasingly popular online digital entertainment streaming service, started
with humble beginnings similar to many other companies. Reed Hastings and Marc Rudolf

The Netflix/Qwikster Debacle

started the company in 1997, on the basis of using the internet to rent DVDs by mail. It was set
up as a monthly subscription service allowing for the rental of DVDs with no late fees, simply
mail the DVD back when you were done using it and they would send you the next DVD on
your list. The business model quickly flourished and has grown into no other than what we know
it as today.
While it is hard to believe, in the year 2000, the company of Netflix almost came to an
end. Rick Hastings and Marc Rudolf offered to sell the company to Blockbuster, for an
undisclosed amount, and give them the opportunity to officially turn it into BlockBuster.com.
Obviously this did not happen and Netflix took it as an opportunity to keep pushing forward and
adding to their business model, eventually turning the tables on Blockbuster. At one point, Reed
Hastings decided to drastically decrease prices to fight off a comeback attempt by the very
people they tried to sell the company to. The thought at the time would be that Netflix would go
broke because of this; their stock drastically falling. However, this was not the case and they
ended up pushing Blockbuster out which resulted in the company growing significantly.
The Split Decision
Fast forward to 2011, Netflix has been extremely successful and is still offering the DVD
by mail subscription along with an online
movie streaming service. Various
subscription plans are being offered; mail
in DVD rentals as a standalone service,
the online streaming as a standalone
service and a combined mail in DVD and
online streaming service. Going forward,
the streaming service was gaining
ground, with the majority of new
subscriptions being for just the streaming
service. However, the mail in DVD
service still held its loyal customers. Cue
the pandemonium. Sometimes around July of 2011 Netflix announced that they were going to
raise the DVD subscription price from $7.99 a month to $9.99 a month. Although consumers
were angry about that decision the real backlash came with an announcement made by the
company a few month later in September. It was announced that not only were they going to
raise the prices again by a combined 60%, they were going to be splitting the company into two
separate entities. Netflix would remain and be designated for only the online streaming services.
The mail in DVD service would be moved to a new service called Qwikster. The Qwikster
website and service would be completely removed from Netflix, forcing consumers who wanted
access to both services to have two completely independent subscriptions. This action of splitting
the company and their services was extremely unpopular with consumers, ultimately resulting in
the loss of 800,000 subscriptions during a three month period (Wagstaff).
From a business perspective, the move by Hastings and Netflix made perfect sense. The
services being offered were completely different and required two different sets of operations to
perform. They had different cost structuring, different marketing, a different delivery system and

The Netflix/Qwikster Debacle

different demands that required distinctive management actions on each end (Blodget). It would
be cost effective for Netflix to split these two services and with the price increase it would have
resulted in a considerable boost in revenue. The streaming services had been growing steadily up
until this point in time. The fact is that streaming is way less expensive then mailing out DVDs.
Of course Netflix would want to focus on the side of the business that was making them more
money. If one is to take into consideration the blog post of Netflix CEO Reed Hastings, there
might not even be a DVD-only side of the company for long. One sentence from his blog post
announcing Qwikster stands out when Hastings (2011) stated, "DVD by mail may not last
forever, but we want it to last as long as possible." This indicated to the majority of people that
Netflix doesn't want to be in the DVD business for much longer, with Netflix continuing to focus
its efforts on acquiring new streaming material ultimately making the DVD rental section a lower
priority. Many viewed the decision to split
the company was the first step in trying to
phase out the DVD services altogether
(Blodget).
However, although it would have
been a good move for the company it was
not so good for consumers. The very thing
that made Netflix attractive to consumers
was that it was a one stop shop for their
entertainment needs. Subscribe to Netflix
and you knew that you could watch almost
any movie ever made. If it was not available through the streaming service it was almost
guaranteed that you could gain access to the DVD and it was done all through the Netflix
website (Blodget). The convenience that consumers loved about Netflix was being stripped away
and many responded negatively with many valid points. To the consumer, there was a big
difference in subscribing to two independent services. It would mean that if they could not find
their desired movie on the streaming service that they would have to go to a completely different
website and search a separate database for that title. It would mean that they would have two
separate bills resulting in two separate charges on their bank account and that was a hassle that
many people did not want (Ward).
The Letter
Very soon after Reed Hastings and Netflix had made the announcement that they were
increasing prices and splitting the company things were spiraling out of control. Of the 24
million subscribers at the time, 14.2 million either had the DVD only service or a combined
DVD with online streaming service. The result was more than half of the companys subscribers
being affected by the change that was being made and the majority of those being angry about it.
Not only were many of them canceling their subscriptions, but they were taking to the internet
and social media to express their outrage.
In an act of damage control, Netflix CEO Reed Hastings penned a letter and emailed it to
every person who was currently subscribed to Netflix. The letter, which opened with Hastings
(2011) saying I messed up. I owe you an explanation. was an effort by Hastings to soothe the

The Netflix/Qwikster Debacle

anger of the masses. I should have personally given

you a full explanation of why we are splitting the
services and thereby increasing prices, Hastings
(2011) said in the letter and then reiterated in a blog
post that Sunday night. It wouldnt have changed
the price increase, but it would have been the right
thing to do. 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. That was certainly not our intent, and I
Netflix CEO Reed
offer my sincere apology. Hastings (2011) goes on
Hastings
trying to explain, almost belittling the consumer for not understanding,
of the reason why the
services are growing apart and that if the streaming service is to continue to grow there is no
other choice but to split the company. He (2011) states, So we realized that streaming and DVD
by mail are really becoming two different businesses, with very different cost structures, that
need to be marketed differently, and we need to let each grow and operate independently. By
going through the effort to try to explain the mechanics behind their decision, Hastings assumed
that if people understood why, that they would remarkably start to care about the reason Netflix
was making their decision. He was wrong. People did not care about the reason why Netflix was
changing; all they cared about is that things were all of a sudden going to be harder on them and
that they were going to have to pay more for it. Hastings (2011) ends the letter stating, Both the
Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight.
Actions speak louder than words. But words help people to understand actions. Through this
statement Hastings almost admits that they broke the trust of the consumer by what they were
doing, but that they were going to move forward anyway because it was in the best interest of the
company, not necessarily the consumer.
It was clear that Hastings was trying to do what was best for Netflix; each of his
decisions had good reasoning behind them and the support of the company. The price hike was
understandable; with the cost of mailing DVDs a price increase was going to happen sooner or
later (Zax). Like previously mentioned, the majority of new Netflix subscribers were signing up
for the streaming only service. The DVD subscriptions for Netflix had been steadily falling for
the past few years. Other companies like Amazon and Hulu had increasingly popular streaming
services of their own. It was clear to Hastings that the future of digital entertainment was in
streaming and not in optical disk. However, even though he was right in his assumptions, he did
not have to send out a letter to millions of people and say it. His letter ended up having the
opposite effect of what it was intended to have. Instead of helping people to understand the
reason why, it confused and made them angrier about the situation. It gave them even more
ammunition, as if they needed any more, to fight back against the changes or just cancel their
subscriptions altogether. Netflix stock plunged 35 percent after the news broke that the member
numbers were still falling.
The Death of Qwikster

The Netflix/Qwikster Debacle

Almost as quickly as Qwikster was brought to the attention of the world and millions of
Netflix subscribers, it was gone. On the morning of Monday, October 10 2011, approximately
three weeks after it was initially announced, Reed Hastings posted on the company wide blog.
This time it was not a long, drawn out, extremely detailed letter. This time Hastings kept it short
and to the point, making the whole announcement not even longer than half of a page. He
announced that after extreme consumer backlash that they were going to be pulling the plug on
the DVD only service Qwikster before it was even put into place. This was despite already
spending millions in marketing and developmental planning for the companies split. He cited
confusion of separating the two services as the main reasoning behind the decision. "It is clear
that for many of our members two websites would make things more difficult, so we are going to
keep Netflix as one place to go for streaming and DVDs, Hastings (2011) wrote "This means no
change: one website, one account, one passwordin other words, no Qwikster." He also
referenced the price changes noting, While the July price change was necessary, we are now
done with price changes. He then ended the posting sharply with, We value our members, and
we are committed to making Netflix the best place to get movies & TV shows. Thank you.
Reed.
Initially, Reed Hastings indicated that he was willing to take losses in the short term in
order to bring Netflix into its new digital identity. However, after the events started to unfold, he
quickly changed his mind and the direction he wanted to take the company. There is a
difference between moving quickly, which Netflix has done very well for years, and moving too
fast; which is what we did in this case," Mr. Hastings (2011) said in a statement. While the main
focus has been on the outrage of
the subscribers to Netflix,
investors in the company have
been just as infuriated with Mr.
Hastings and the decision to split
the company (Woo). In fact, he
acknowledged that he had been
getting negative feedback from
investors from the beginning and
joked about it in a message
posted to Facebook two days
after he announced the Qwikster
plan. He (2011) wrote, "In
Wyoming with 10 investors at a
ranch/retreat, I think I might
need a food taster. I can hardly
blame them." The companys
stock price fell more than 60%
from the announcement of the
initial price increase in July until the disclosure that they were abandoning Qwikster.
In the aftermath of the companys decision to keep the DVD by mail service under the
Netflix name looked as if it was being commended by Wall Street and consumers alike. The

The Netflix/Qwikster Debacle

companys stock opened on Monday up more than 7% from where it previously was but by the
end of the day it had dropped about 2% from that number. Although it appeared that this was a
step in the right direction, there was still a lot of work to be done. The fact is that Hastings
wanted Netflix to start phasing out the DVD side of the business, and although Qwikster was not
a terrible idea ultimately it could not have played out worse. Hastings was confident that the
future of digital entertainment was not in physical DVDs, but rather in streaming movies and TV
shows over an Internet connection. He wanted to usher in the more affordable streaming as soon
as possible (Indiviglio). However, people were clinging to their DVDs, and after Netflix
customers had several months to comprehend the initial price hike in July Netflix saw many
more customers switch their services from a streaming and DVD plan to a DVD by mail only
plan. This was the opposite of what Hastings was trying to accomplish. At the point in time, in
2011, many people thought that Netflix's streaming business wasnt yet at its peak. The titles
were considered by some to be very limited, and unless you had a device connected to your TV
that supported Netflix, you had to watch them on a computer, netbook, or tablet and that was an
option that few preferred outside of college (Indiviglio). Although Hastings considered streaming
to be the future, the future was not there for many and could not be forced upon them.
After this debacle, Netflix is associated with a list of companies that have had their own
shameful endeavors. Coca-Cola Company, in 1985, brought back its trademark soda after a failed
attempt to produce and market "New Coke." The new soda was widely unpopular and ultimately
boycotted by consumers. In early 2009, PepsiCo Incorporation discarded a newly designed
carton for its Tropicana orange juice after consumers universally disapproved of it. The carton
had only been on the market for 6 weeks after a very extensive marketing campaign. Back in
1999, Delta Air Lines Incorporated was forced to drop a $2 fee on tickets not purchased on its
website because of consumer repercussion (Woo).
Up until the recent events, many in the industry had considered Mr. Hastings to have
donned a reputation as a technology and media visionary. "He's usually a much better chess
player than this," said Adam Hanft (2011), who heads the consumer marketing and branding firm
Hanft Projects. Mr. Hanft (2011) considered the idea of separating the business to be "a total
blunder, and he thought that Mr. Hastings misread consumer intentions and interest
completely." Even after the news broke that the rug was being pulled out from under Qwikster,
the reaction to the news was still mostly negative, with many consumers making comments
suggesting it was time for Hastings to step aside as CEO (Bosker). "Wow.... time for a new CEO
with all this flip flopping," (Bosker, 2011) wrote one user. Another also noted, "Reed you don't
know what you're doing, do you? Please offer me a job; I've got a few easy steps to save the
company." (Bosker, 2011). With all of this happening within a relatively short time frame,
Netlixs reputation, along with Reed Hastings, took a major hit. However, there are those that
saw both sides the decision and commented that the battered CEO of Netflix acted in a good,
smart, honorable way and did the difficult thing by announcing the end of Qwikster. By making
that decision, he has shown that he is not deaf or uncaring to the demands and objections of the
customer base; and that he is not afraid to admit, in public, that he made a mistake (Gilbert). The
only question was what would they do and whether or not they could recover.
The Recovery

The Netflix/Qwikster Debacle

For Reed Hastings the worst part of the companys 2011 self-inflicted Qwikster debacle
did not seem to be that he was very publicly ridiculed and made fun of but it was the fact that he
received thousands of e-mails from angry and disappointed customers that really bothered him.
Netflix as a company cannot afford to anger subscribers and risk having more of them jump ship
to competitors such as Amazon, Hulu, or Redbox. This not only affects revenue but also Netflix's
ability to negotiate streaming contracts with content providers (Stewart). After the fact Mr. Reed
(2013) came to the realization stating that if our business is about making people happy, which
it is, then I had made a mistake. The hardest part was my own sense of guilt. I love the company.
I worked really hard to make it successful, and I screwed up. The public shame didnt bother me.
It was the private shame of having made a big mistake and hurt peoples real love for Netflix and
that felt awful.
When it comes to corporate mistakes, there are not many that could boast such a
comeback from what many thought to be a death spiral, especially in a technology world that is
greatly momentum driven (Stewart). Mr. Hastings said he realized that the companys attempt to
both increase prices and separate into two companies was trying to do too much too quickly. He
said it was my greatest fear at Netflix has been that we wouldnt make the leap from success in
DVDs to success in streaming. (Hastings, 2013).
However, he does acknowledge that he did try to rush to
accelerate the transition and then stated, In hindsight, I
slid into arrogance based upon past success. Looking
back on it Mr. Hastings (2013) has said he did not predict
that the initial apology alone would turn it around,
adding, I wasnt nave enough to think most customers
care if the C.E.O. apologizes, but I thought it was honest
and appropriate. He also added, I couldnt say with
confidence that wed recover. We were in a place that was
quite risky. We didnt have the reserves to make a second
stumble. (Hastings, 2013)
For the time shortly after the decision to nix
Qwikster, Mr. Hastings did his best to stay out of the public eye and tried to focus on the day to
day management of the company. The subscriber evacuation had finally started to dwindle by the
end of the first quarter of 2012 and began to show small signs of improvement. In September, a
year after Mr. Hastingss apology, Netflix shares dropped to $53.80. This was down from almost
$300 before the Qwikster debacle. Then, beating estimations, the company announced in January
that it had added two million streaming subscribers during the fourth quarter of 2012. This was
said to be because consumers seemed to have embraced tablet computers and Internet televisions
during the holiday season (Stewart). Shortly after, Netflix stock was considered undervalued
by many and the stock began to climb, eventually getting back over $200. In one sense I can say
this is behind us, Mr. Hastings (2013) said. But its like a partially healed bone. Its still quite
fragile. Were we to make a similar mistake, wed be right back in the penalty box. So were not
really out of the woods. Were growing and were making good progress, but were still not fully
back to where we were.

The Netflix/Qwikster Debacle

Conclusion
Netflix is a company that has fallen and then had to build itself back up again. Reed
Hastings made some bad decisions for the company and then followed those with huge
communication missteps. However, through listening to the outcry of the consumers and
investors, he was able to change the course of the company and turn things around. Netflix is no
longer weak as a result of their actions. Be that as it may, neither are their competitors. Amazon
is always trying to find ways to take away Netflix's content and subscribers (Carmody). Hulu
Plus has increased its subscriber base, by almost double, in recent years. Netflix has been very
successful after their comeback with original and exclusive content, such as Netflixs House of
Cards or Orange is the New Black. Both Amazon and Hulu are also working hard to invest in
original and exclusive content of their own. This being said, Netflix is going to have to work
hard to stay ahead of the game and gain some sort of competitive advantage in the future.
Recommendations
The question is was it possible for Reed Hastings and Netflix to avoid everything that
happened. Could they have avoided the loss of subscribers, the hit to their reputation, and the
major fall in their stock price? The issue was not necessarily the initial price increase. That was
necessary and they could have easily recovered from that. The problem was the process of
splitting the company provided absolutely no value to the consumer. That, coupled with the fact
that it would have been charging them even more, sent most people over the edge. Would it have
been possible for them to have successfully implemented the separation of the DVDs from the
streaming side of the business without upsetting customers? Some believe that they could have
made changes behind the scenes that could have accomplished the same thing. Netflix still could
have made the separation but still used the same website and one billing process, perhaps just
separating the charges on one bill; one charge for Netflix and another for Qwikster with one total
and one charge to the customers card. They already had a system somewhat in place for the
streaming and DVD combo plan and they already had one database of movies for the DVD and
the streaming.
Now that other companies have started to follow in Netflixs footsteps and offer other
online streaming services Netflix is going to have to work to stay ahead of the game. They have
made steps doing just that with their original and exclusive content. Netflix original series, like
the House of Cards, have been very successful. However, Netflix still needs to push the red
envelope. There were rumors in the past that Netflix might start to dabble in the video game
business. There are other such subscription services that offer games by mail similar to Netflixs
DVD by mail system. That being said, none of them have a customer base that is already as large
as Netflix. Using their already well established customer base Netflix could very well offer a
video game subscription for an additional fee. Video games are more expensive than DVDs or
movies so the fee would have to be slightly higher, possibly $14.99 a month or less if you are
already a Netflix customer.
Another opportunity that would be a great advantage for Netflix would be their potential
relationship with HBO. It is rumored that HBO might come to offer a standalone subscription
service as soon as 2015. Right now, HBO is only available through a subscription through your

The Netflix/Qwikster Debacle

10

satellite or cable provider. If it did move to a standalone service, it could potentially be a huge
competitor to Netflix. I believe that a relationship between HBO and Netflix could be beneficial
to both companies. HBO shows have a huge following and consumers are paying a considerable
fee every month just to watch their shows. The point is, if Netflix could team up with HBO and
offers a combined subscription to Netflix, this could be a huge blow to satellite and cable
providers and a big win for both Netflix and HBO.

References
Blodget, H. (2011, September 19). With All Due Respect To Reed Hastings, The NetflixQwikster Split Sucks For Customers. Retrieved from
http://www.businessinsider.com/with-all-due-respect-to-reed-hastings-the-netflix-

The Netflix/Qwikster Debacle

11

qwikster-split-sucks-for-customers-2011-9
Bosker, B. (2011, October 10). Qwikster Is Dead: Netflix Kills DVD-Only Service Weeks After
Unveiling It. Retrieved from http://www.huffingtonpost.com/2011/10/10/qwikster-deadnetflix-kills_n_1003098.html
Carmody, T. (2013, January 23). Netflix CEO Reed Hastings thinks he can win the video
subscription war. Retrieved from
http://www.theverge.com/2013/1/23/3908374/subscribers-netflix-ceo-reed-hastingssteps-TV
Gilbert, J. (2011, October 10). Qwikster Goes Qwikly: A Look Back At A Netflix Mistake.
Retrieved from http://www.huffingtonpost.com/2011/10/10/qwikster-netflixmistake_n_1003367.html
Indiviglio, D. (2011, October 11). 5 Reasons Why Qwikster Is Now Deadster. Retrieved October
19, 2014, Retrieved from http://www.theatlantic.com/business/archive/2011/10/5reasons-why-qwikster-is-now-deadster/246465/
Stewart, J. (2013, April 26). Netflix Looks Back on Its Near-Death Spiral. Retrieved October 20,
2014, Retrieved from http://www.nytimes.com/2013/04/27/business/netflix-looks-backon-its-near-death-spiral.html?pagewanted=all&_r=1&
Wagstaff, K. (2011, October 24). Netflix Loses 800,000 Subscribers After Price Hike, Qwikster
Debacle | TIME.com. Retrieved from http://techland.time.com/2011/10/24/netflix-loses800000-subscribers-after-price-hike-qwikster-debacle/
Ward, K. (2011, September 19). Netflix CEO says he messed up, will rename DVD service
Qwikster | EW.com. Retrieved from http://insidemovies.ew.com/2011/09/19/netflixqwikster-changes/
Woo, S. (2011, October 11). Under Fire, Netflix Rewinds DVD Plan. Retrieved November 21,
2014, Retrieved from
http://online.wsj.com/articles/SB10001424052970203499704576622674082410578
Zax, D. (2011, October 11). Netflix's Qwikster Debacle. Retrieved October 21, 2014, Retrieved
from http://www.technologyreview.com/view/425713/netflixs-qwikster-debacle/

First Letter by Netflix CEO Reed Hastings on Sunday, September 18, 2011

The Netflix/Qwikster Debacle

12

An Explanation and Some Reflections

I messed up. I owe everyone an explanation.
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. That was certainly not our intent, and I offer my
sincere apology. Ill try to explain how this happened.
For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to
success in streaming. 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 realize 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.
In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our
service, without doing much CEO communication. Inside Netflix I say, Actions speak louder than words, and we should just
keep improving our service.
But now I see that given the huge changes we have been recently making, I should have personally given a full justification
to our members of why we are separating DVD and streaming, and charging for both. It wouldnt have changed the price
increase, but it would have been the right thing to do.
So here is what we are doing and why:
Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV
series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still
exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last
forever, but we want it to last as long as possible.
I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our
streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement
as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.
So we realized that 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.
Its hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few
weeks, we will rename our DVD by mail service to Qwikster.
We chose the name Qwikster because it refers to quick delivery. We will keep the name Netflix for streaming.
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. One improvement we will make at launch is to add a
video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360
games. Members have been asking for video games for many years, and now that DVD by mail has its own team, we are
finally getting it done. Other improvements will follow. Another advantage of separate websites is simplicity for our members.
Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the
renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to
both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if
you rate or review a movie on Qwikster, it doesnt show up on Netflix, and vice-versa.
There are no pricing changes (were done with that!). Members who subscribe to both services will have two entries on their
credit card statements, one for Qwikster and one for Netflix. The total will be the same as the current charges.
Andy Rendich, who has been working on our DVD service for 12 years, and leading it for the last 4 years, will be the CEO of
Qwikster. Andy and I made a short welcome video. (Youll probably say we should avoid going into movie making
after watching it.) We will let you know in a few weeks when the Qwikster.com website is up and ready. It is merely a
renamed version of the Netflix DVD website, but with the addition of video games. You wont have to do anything special if
you subscribe to our DVD by mail service.
For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will
have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of

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you. Well also return to marketing our DVD by mail service, with its amazing selection, now with the Qwikster brand.
Some members will likely feel that we shouldnt split the businesses, and that we shouldnt rename our DVD by mail service.
Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail. It is
possible we are moving too fast it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail
service ever, throughout the United States. Netflix will offer the best streaming service for TV shows and movies, hopefully
on a global basis. The additional streaming content we have coming in the next few months is substantial, and we are
always working to improve our service further.
I want to acknowledge and thank our many members that stuck with us, and to apologize again to those members, both
current and former, who felt we treated them thoughtlessly.
Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak
louder than words. But words help people to understand actions.
Respectfully yours, -Reed Hastings, Co-Founder and CEO, Netflix

Blog Post from Netflix CEO Reed Hastings on Monday, October 10, 2011.

DVDs will be staying at netflix.com

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as
one place to go for streaming and DVDs.
This means no change: one website, one account, one password in other words, no Qwikster.
While the July price change was necessary, we are now done with price changes.
Were constantly improving our streaming selection. Weve recently added hundreds of movies from Paramount, Sony,
Universal, Fox, Warner Bros., Lionsgate, MGM and Miramax. Plus, in the last couple of weeks alone, weve added over
3,500 TV episodes from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel,
TLC, SyFy, A&E, History, and PBS.
We value our members, and we are committed to making Netflix the best place to get movies & TV shows.
Thank you.
-Reed

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Primary Research Assignment

Organization and Situation
Netflix was started in 1997 on the basis of using the internet to rent DVDs by mail. It
was set up as a monthly subscription service allowing for the rental of DVDs with no late fees,
simply mail the DVD back when you were done using it and they would send you the next DVD
on your list. In the summer of 2011 there was a misstep in planning and communication that
initiated a period of decline for the company. Over 800,000 customers unsubscribed during a
short time period and stock prices fell significantly. Netflix did recover, but they are going to
have to work hard to stay ahead of the game and gain some sort of competitive advantage in the
future.
Sample Population
Netflix already has a very wide customer base. Since they are already subscribed Netflix
already has all their contact information, including their email. I would take a sample of 100,000
(a rather small percentage) Netflix customers that subscribe to both the DVD by mail and the
online streaming services.
Questions
1) Are you happy with your current Netflix subscription and its service?
A. Yes
B. No
2) If Netflix was to raise prices by $1, would you cancel your subscription?
A. Yes
B. No
3) If Netflix were to stop the DVD by mail service, would you stop using Netflix?
A. Yes
B. No
4) If you were going to use a streaming service similar to Netflix, which one would it be?
A. Amazon
B. Hulu
C. Redbox
D. Other
5) Does Netflixs exclusive content, such as House of Cards or Orange is the New Black, make a
difference in your choice subscribing to Netflix?
A. Yes
B. No

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6) If Netflix were to venture into offering video games, would you pay an additional fee to
subscribe to that service?
A. Yes
B. No
7) Along with your subscription to Netflix, do you subscribe to another streaming service such as
Hulu, Amazon Prime, Redbox Instant, or other?
A. Yes
B. No
8) Do you think that Netflix provides enough content for your entertainment?
A. Yes
B. No
9) What electronic device do you use to access Netflix the majority of the time?
A. Smart TV
B. Game Console
C. Smartphone or Tablet
D. Computer
10) If HBO Go were to offer a standalone subscription service, would you subscribe?
A. Yes
B. No
13) If HBO Go were to offer a standalone subscription service, would you cancel you Netflix
subscription?
A. Yes
B. No
12) Would you pay an additional $15 fee to have HBO through Netflix?
A. Yes
B. No
Distribution Plan
Since Netflix already has access to the customers emails, I would use email as the means
to get the survey out to the 100,000 customers. As an incentive, I would offer $1 off their next
months bill if they complete the survey. I believe that this approach would be adequate to have a
good amount of surveys completed by their recipients.