The stock plunges on news that the subscription company is splintering off its DVD by mail business
Netflix’s bombshell Sunday night announcement that it was spinning off its DVD business into a new company called Qwikster left already outraged customers feeling even more burned.
And that apology from CEO Reed Hastings over the way the home entertainment company had handled its much maligned price hike didn’t make the pain go away.
Subscribers didn’t shy away from letting Hastings hear their displeasure, weighing in on the company’s blog with over 15,200 comments, the bulk of them overwhelmingly negative.
“Fire the manager who came up with both the name Quickster [SIC] change and division of services,” H. Lamar Thomas wrote. “I'll probably have to drop one or both.”
“Thanks for the explanation and apology,” Grant Gouldon wrote, “That helps, but your arrogance is still so thick it's palpable. The "I'm sorry if you were offended" is no apology at all. It just makes things worse.”
"I just got your email, and, as a long-time customer, quite frankly found it to be offensive. And perhaps a devastating mis-calculation for your business,” David Isaacson wrote. “Your best customers are those like myself that use the DVD and the streaming services. But those are the very customers that you are alienating.”
Wall Street didn’t seem too stoked about Qwikster either.
The stock dropped over 7 percent to $143.65 Monday, and analysts told TheWrap that they expected the bleeding to continue.
“If I had to boil it down, if it’s not broke, don’t fix it,” Tony Wible, a media analyst with Janney Montgomery Scott, told TheWrap. “I do believe that Netflix is the AOL of streaming and now Wall Street has the tools to value the sum of its parts and it’s going to be less than the whole.”
For Netflix watchers, it was another blunder coming on the heels not just of a 60 percent price increase on its most popular subscription service, but also the company’s failure to renew its streaming deal with Starz.
Losing Starz leaves Netflix without digital access to movies from Disney and Sony — a huge blow to its streaming library.
For its part, Netflix insists that the new structure will allow the two legs of the companies to improve their core competencies.
“With change some people are disappointed, but it's for the best because it will allow us to innovate and our members will benefit,” Steve Swasey, a spokesperson for Netflix, told TheWrap.
The plans to launch Qwikster have apparently been in the works for awhile and were not a reaction to last week’s stock drop. It’s part of a larger effort to transform Netflix into a pure streaming business and dial down its by mail arm with its attendant high postage costs.
Analysts, however, said by operating the DVD and streaming services as independent companies and asking customers to set up two seperate account, Netflix is making its product unnecessarily complicated.
“It’s the dumbest thing I’ve ever seen. They went from being about the smartest company to the dumbest in about three months,” Michael Pachter, an analyst at Wedbush Securities, told TheWrap.
“They had a flawless service that was widely admired and they’re throwing a wrench in it,” he added.
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