Netflix's Qwikster Scheme Not Necessarily Insane

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And you thought people were angry about Netflix jacking up the price of a combined DVD and streaming subscription.

Late Sunday night, the company splashed lighter fluid on that customer-service fire by announcing that it would spin off its DVD-by-mail service into a separate operation named Qwikster, allowing Netflix to focus on its online offering.

Chief executive Reed Hastings (pictured) must have thought he'd do his Los Gatos, Calif., employer some good by explaining this move at length in that blog post and an accompanying video, then spending much of the rest of the night replying to comments on the post.

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No such luck: The move seems to have gone over like New Coke in new bottles. Already-embittered Netflix subscribers have denounced Qwikster as "Quitster," while the widely-read Oatmeal web comic teed off on it and an animated parody video has a Netflix customer asking a Hastings stand-in, "Have you ever interacted with an actual human being before?"

Those are understandable reactions if you subscribe to Netflix's DVD service or have merely thought about it. Instead of going to one Web site–on which you have one set of cinematic preferences stored–and paying one bill, you'll be looking at two. That flips the standard-issue logic for corporate mergers on its head: For the sake of vague business goals, we'll split our company in half to double the personnel and paperwork involved.

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But if you then ask why Netflix wants to make renting DVDs so unpalatable, you may be on your way to a better grasp of this situation. As technology writer Dan Frommer has argued in an insightful series of blog posts, Netflix wants to kill off its DVD business to clear the way for streaming.

Why? The company now has far more subscribers to its streaming service, in which movies play back live over the Internet, than to its DVD option–and the trend was accelerating even before the price hike. Plus, as Frommer noted, Netflix can extend its streaming service to other countries far more easily than its mail operation.

Netflix just needs to convince the movie studios to release more studios for streaming. One way is to show that they won't have any other viable way to reach home viewers. (Presumably, it thinks little of Redbox's chances.)

As a Netflix streaming subscriber, I don't object to Netflix trying to push the studios into better supporting online distribution. But it's still awkward to see it do so by essentially treating customers as hostages. Netflix's clumsy explanation doesn't help its cause. Nor does the existence of web rivals like Hulu Plus and Walmart's Vudu–or the impending arrival of a revived Blockbuster streaming service, relaunched by its new owners Dish Network.

(Update, 9/23: Never mind about the Blockbuster option announced today; Dish has foolishly chosen to limit that service to people who already subscribe to its satellite-TV service.)

If you're that annoyed by Netflix's treatment, complain all you want–but you'd communicate your displeasure more effectively by signing up with one of those competitors.

Photo: FRED PROUSER/Reuters/Corbis

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