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The attack surface for other companies has just doubled

If anything, that is an underestimate. I really can't understand what they are thinking. Since I am interested in both DVD and streaming, up to now I was completely locked into Netflix because of the integrated system - my "Instant" queue is just the subset of my DVD queue that is streamable.

If they break that link, and I derive no gain from being BOTH a Netflix-DVD and a Netflix-streaming customer, what is there to stop me switching to Amazon or other competing streaming service tomorrow? Absolutely nothing.

This is such a bad decision I actually can't even begin to understand how it made sense to the dude for the whole length of time it took him to write that announcement.

Edit: and another thing. Am I expected to believe that a technology company cannot figure out how to run two different business arms with a single customer-facing UI/website? This is something frigging clothing companies do every day.

> Am I expected to believe that a technology company cannot figure out how to run two different business arms with a single customer-facing UI/website?

Even worse, the technology company we're talking about already does that and has done it for years.

What's to stop you from switching to Amazon? Have you tried watching a movie on Amazon? Way less usable and its hard to find movies sometimes. Netflix has a way better interface and what I find myself doing is checking on Netflix first, and then only if they don't have it, do I go to Amazon.

I've watched things on Amazon Instant in the past and didn't find it any less usable. In fact, I actually find Amazon more usable since it works on my operating system.

It's kind of a moot point to say "Well, Amazon has a crappier interface, so Netflix is safe", since Amazon can always update its interface to something more friendly. The important point is that Netflix has given up one of the major incentives to use its service -- the integration of DVD and streaming.

I think the parent's point was, that is the case -now-. But that could change with one new release of Amazon's steaming service. Previously, even if Amazon released a new offering, the mailing service added an additional incentive to stay with netflix. Now if Amazon releases a better streaming option, you can simply dump Netflix streaming.

Amazon's streaming movies work great in linux. Even better than youtube fullscreened.

Amazon's online collection is much, much larger than Netflix's online collection. Are you referring only to their Prime service?

What is there to stop me switching to Amazon or other competing streaming service tomorrow?

The quality of those services compared to Netflix.

Netflix realizes that they have to move quickly to cement their dominance in this field over the long term. If they are held back by their legacy business, they are going to die quickly. They would rather risk pissing off their biggest fans than jeopardize their stake in streaming.

I just don't understand this argument. In what real, actual ways is Netflix plausibly "held back" by shipping DVDs to folks? And in what ways is this fixed by spinning that business off in such a way that the exact same people will now run that company?

Because it seems to me that this is a lose-lose proposition, for the reasons stated by the commenters above.

they've also given up on the complete Netflix brand recognition. Going with a completely new name is going to lose all the loyalty they built up. While you can get movies from practically anywhere would may Netflix unique was there streaming and DVD services. This is deadly instance of creating multiple targets for yourself, they were deathly stronger together.

"...A lot of the movies are not available for streaming."

Quite a lot, actually, including the majority of new releases. And this will only become more evident in the eyes of streaming subscribers when they no longer see most of the new titles listed in searches. (Even the presence of those "Only available on DVD" titles in streaming-service SERPs lent a sort of subconscious, psychological indication of the robustness of Netflix's library).

Hard to see what Netflix stands to gain here. Streaming may be the future of media consumption, but there are still a few big hurdles to leap. Placing all the eggs in the streaming basket now feels a tiny bit premature. It's entirely possible now that streaming will win the day, but it'll be a competitor (or two) waving the victory flag.

I'll be interested to see if the split compels media companies to make more content available for streaming. Perhaps that's part of the logic behind splitting out the business; Netflix may have reasoned that it will put more pressure on content holders to license that content for streaming if it won't be available on Netflix at all anymore. In this scenario, it seems that Netflix may be throwing the DVD arm under the bus in hopes that it will strengthen their streaming offering.

My first thought was: Now Netflix's streaming content won't be bound by DVD by mail quotas.

if that is their intention they're going to be an far rude awakening. Netflix's subscription-based model will never support the new releases that are currently offered on pay-per-view sites. They are now also going to be competing with cable companies who will most likely always beat them with new releases. They should've just made their DVD operation more efficient. The intangible value added to the company is completely underrated.

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I think you misread my post. I was saying that quite a lot of new releases are not available on Netflix's streaming service.

Another thing. Not all users have a device connected to their TV that works with Netflix (like an Xbox).

Nor do those same people want to watch a movie or a TV show on their computer.

Those people request DVDs.

I don't see the issue with keeping everything under one brand.

Netflix became popular because of their DVD-in-the-mail service. It's a shame to spin that off into a sub-par seeming brand. Just keep it all under one house but emphasize the streaming service.

It's not like they can't design their one site to give users an option on what they want (streaming or DVD-in-the-mail).

Keep it simple, stupid.

If they are doing this because of the economics of the DVD and streaming service, then nevermind.

Disclaimer: Netflix employee here

The main reason for the split is the realization that streaming service and DVD service are two completely different businesses that need to grow in completely different ways. For example, in case of streaming service, we've just expanded to Latin America and the Caribbean (to 43 new countries). In case of the DVD service, we're adding a new video games catalog.

DVD service is still growing - it probably won't grow at the same rate for very long, but right now, it's growing. Streaming, on the other hand, is growing at a phenomenal rate. Therefore it makes sense to not hold up the growth of one service for the other to catch up.

In the time (about 6 months) I've been at Netflix, the one thing I'll have to call out is the absolute, undeterred focus that the company has. Simply put, Netflix fundamentally believes that it's best to do one thing really, really, really well, than to do many things reasonably well.

Splitting the streaming and DVD service isn't so much due to lack of ability to design the website to suit both options, but really as an indication that they are turning out to be different businesses altogether.

From the customer's perspective, they are not two separate businesses. They are one, strong business (well, were).

Streaming is most valuable when DVD is (a) there as a backup, and (b) managed with the same system.

Netflix has seriously decreased the value of their streaming offering by separating out the DVD and de-integrating their systems.

There is basically no reason to pay for Kwikster now (terrible name BTW), and the streaming is now an extra cost. We'll have our kids use Amazon Prime, which we already pay for. They're much less choosy for content anyway, and it cuts off another monthly bill.

Someone inside of Netflix should have had the balls to tell your CEO this was a stupid idea and customers would hate it.

You don't speak for all Netflix customers when you offer your perspective.

I joined Netflix because of streaming and I prefer to look at streaming only. When I joined netflix I got a DVD and didn't return it for a year. I didn't want to return it because I didn't want to get another DVD. In search results I never wanted to see the DVD results. I wanted to see what I could watch now. Content is such a key part of this. If the streaming service had the same or more content than the DVD business, nobody would care. But since they are still building that collection and struggling with content owners, people are freaking out.

Time will tell whether this was a stupid idea for the market at large. As a streaming customer, I'm indifferent. As a tech pundit, I think it was an important strategic move and I applaud Netflix.

I think you're throwing out the baby with the bathwater. There are straightforward technical solutions they could implement to address your complaints, but for those of us that aren't so extreme, there's no easy solution to the way they're breaking our desired usage.

I am a Netflix customer. I don't care what they do with their DVD collection. The only reason I occasionally ordered a DVD is because it was available in my subscription. Since the split, I've canceled my DVD service. I hate DVDs. I don't want to wait for them, I don't want to handle them, I don't want to remember to mail them back.

To me the split has zero impact on my perception of the value of the streaming service.

I looked at Amazon about 6 months ago, and there was no content of interest there that was not also on Netflix.

I am also a Netflix customer. I too canceled my DVD service. I haven't ordered a DVD from Netflix for months.

I had previously thought that if I ever did want to order a DVD again (for something not available on streaming), I could just reinstate the DVD service and order it. Now, it appears, I would have to sign up with a totally different system to get the DVDs. I'm probably not going to bother doing that.

I am baffled as to why they would split the DVDs into a different business altogether. It's a different product, sure, but need it be a whole separate business? I trust it makes sense internally to Netflix, and I presume it is projected to be more profitable. And if so, then I can hardly blame them for doing it. But as a user, I don't get it.

While there may be some business sense behind it, as a customer, I don't see any benefit for me. It may make things easier for Netflix, but how does it make anything better for me as a customer? This is the second time Netflix has made an announcement about changes that were seemingly for some good reason, but left customers bewildered.

If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.

With the split, Netflix gets to focus entirely on streaming - make it better for the customer. Which means, more (and better) content, faster and better streaming service, Netflix on more devices, providing Netflix outside US and Canada etc.

And Qwikster gets to focus entirely on DVD service - which means expanding the DVD catalog, getting video game rentals for Wii, PS3 and Xbox 360.

As a customer, you get a much better Netflix and/or Qwikster experience. As a Netflix employee, I get to focus entirely on making streaming better, faster, available on more devices, and in more regions than we have today, without having to worry about compatibility with the DVD service.

As a paying customer,

I don't want my experience dominated by picking between one medium and another.

I want to pick from a unified comprehensive content catalog, and get the content on whatever medium is available/convenient.

I want a single unified queue which I can append and rearrange with ease, not have to maintain 2+ queues of content separated only by medium.

I want to add title X with the intent of seeing it on pristine Blu-ray, and then on a whim watching it right now when streaming rights are negotiated - _without_ having to do a deliberate search on another site ("nope, not streaming yet").

FWIW: I was at Kodak when they decided that the distribution model was more important than the customer experience. You remember Kodak? used to make film for cameras? film? nevermind. Big name in the photography business, now bulldozing five miles of disused manufacturing buildings for tax reasons.

Splitting the delivery departments was smart, realizing streaming is the winning long-term move was smart, unifying the customer-facing content selection to cover all media would be smart. If I pick a title, I want the choice of media subordinate, not dominant.

How does splitting them up make them each phenomenally better? Why should the customer care about Netflix's internal organization? Make the same changes, just keep the top level name and details like accounts/recommendations.

If I buy a Macbook Pro it's from Apple and if I rent a movie from the iTunes store it's from Apple... They are completely different business units internally, but to the customer it's the same company and I can use the same account for either purchase.

One theory, discussed by Bill Gurley in the post below, is that it'll put them in a better negotiating position with the studios, who were trying to get a percentage of Netflix revenues (not just the streaming revenue)...

http://abovethecrowd.com/2011/09/18/understanding-why-netfli...

This has the ring of truth--otherwise, why not just better separate the divisions within the Netflix brand, as many (angry) commentors have suggested?

An additional possibility that occurs to me is that the movie studios' well-publicized dislike and fear of the streaming business is hurting the physical DVD business. Netflix has had to accept some pretty bad terms from studios, like delaying their availability of new releases, in part because studios see Netflix as a long-term threat. Quickster, on the other hand, should be able to build better relationships with studios precisely because they're not a threat to the studios' long-term dominance.

Basically, it's true that this is not the most customer-friendly move in the short-term, but the movie studios' strategy in the medium-term was to kill Netflix. "Continue to grow in the same direction" was not an option because the studios hated it, and this way both pieces of Netflix have at least a chance to survive.

> If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.

Depth of catalog is the most important feature for me. I especially like watching HBO shows without paying tons of money for cable. I also sometimes like watching really obscure films. Films which were released on DVD at one time, but where it may be hard to track down anyone to authorize licensing for streaming.

Which should I pick?

Before Netflix, I satisfied my tastes at the independent video stores around town. Netflix killed those. Naturally, I'm sensitive to any changes that might undermine the DVD service.

The best solution, as I've mentioned before, is to just allow obligatory licensing. Let Netflix convert its entire DVD catalog to streaming. Make it pay a fair statutory fee whenever it streams anything. If a content owner cannot be found, allow the fee to be collected by a designated rightsholder organization (something like ASCAP) until claimed by a verified owner of the content.

Did Netflix kill independent video stores? Or did Blockbuster kill them?

Fair question.

We had a few video stores that really specialized in the long tail. They sat right across the street from Blockbusters or Hollywood Videos. Stuck around a few decades, thrived on the indie image (sorted movies by director, that sort of thing). They made it through BB's reign, and passed away only recently.

But eh, that's my limited experience. I'd welcome more data. Call it a hunch for now, and an open question.

The local video store owner around here told me when it closed that it was netflix that did her store in.

You can do exactly that without rebranding the product. They're called divisions. Give each one a CEO, but to the customer they should all be Netflix.

But divisions can't go bankrupt and die as easily. Qwickster or whatever it is has a death sentence. It's value wull be polished just enough to sell it off to suckers. And when it dies Netflix will just shrug.

He must of done a much better job getting the employees to drink the kool aid then the customers

Must...of?

http://www.urbandictionary.com/define.php?term=Must+Of

Its probably just a marketing drone. The level of clueless ness at netflix is astounding. How about the we'll get rid of reviewers that are 40 times better than our clueless recommendation system and replace them at a future date with the getsapo facebook? Whats that you say gestapo facebook is illegal? Oh well we didnt want your opinions anyway. We replaced the customer with a robot.

I've been following Netflix for years and 'Focus' is Hastings' singular theme. They dodged cloning Hulu, Redbox, Youtube, various 5$\movie rental options, GameFly, etc. They ruthlessly cut out things like Friends features, used DVD sales.

I'm surprised the reaction here is so negative. Working for large companies the theme is usually waste, and inept decision making. This is a result of the size of the decision apparatus. I would think a lot of people here are fleeing that kind of a work environment or are at least aware of it.

Wearing a customer hat this sucks in the short-term, but perhaps pays off in the long-term if the internal decisions made are substantially sharper. Now you don't have meetings where people are wondering why stupid decision X was made, and the answer comes back 'because of this Y interaction with our legacy mail service' which has no long-term role to play.

It's hard to see from afar the complexity of the decisions that goes on at Netflix HQ every day. I don't think that's going to be appreciated when people are wearing their customer hats. Clearly, the short-term customer perspective is poor.

The problem I have with it is that it suggests a shift from customer focus to internal focus. That's certainly how they talk about it, and it's another kind of large-company error.

The happiest face I can put on this is that they've decided to focus on a specific kind of customer (the undemanding kind who will take whatever turns up on streaming) and kiss off the more discerning sort (who really valued the breadth of catalog, and didn't care as much about the medium). Which may or may not be a good business decision, but it's unsurprising that those customers are pretty cranky about it.

Not one of my friends has had a positive reaction to this. Not one. A large percentage of them are expressing very negative reactions.

Anecdotal, but I suspect this will be the least popular move the company ever makes.

I don't quite understand this either/or "let's focus on the big thing" approach. I think most everybody agrees that the streaming business is growing much quicker and is the future. But as others have noted, the businesses are not independent from a user perspective, they form a synergy.

For example, when Motorola split into mobile/home and public safety/enterprise divisions, this made quite a bit of sense (and they were desperate anyway) because there was little overlap between those. To a lesser extent you can understand HPs spinning off the PC business to focus on printers, but in this case, although the underlying delivery mechanisms and business cases are very different both are DVDs!

Think of companies going the other way, consolidating information to create user synergy, i.e. Google adding tweets to search results.

> Another thing. Not all users have a device connected to their TV that works with Netflix (like an Xbox).

Some TVs and most Blu-Ray / DVD players these days play Netflix without extra anything hooked in. Netflix has done a really good job making its streaming offering available on a TV without additional hardware or tech skill.

DVDs are on their way out and streaming is now in and he's putting all his efforts into the streaming business.

What if Microsoft did something similar? What if the CEO in 1998 put all his efforts and attention into the Web? Results for Microsoft might have been much better.

> DVDs are on their way out...

Streaming has a unique disadvantage: you have to haggle with each individual content owner.

Yes, it's cheaper to move bits than stuff. Much. But licensing is a pricey hassle. It's a huge part of the comparison, and as content owners get savvy, it will only get more expensive over time.

This should be a signal of how much more right we got the law with physical media. We all want DVDs to be dead, sure. But DVDs would die tomorrow if we just set up an obligatory licensing scheme for this sort of content. If you distribute a movie, Netflix should be allowed to stream it, and pay you a fair statutory fee.

(This isn't some a radical new idea or some Communist scheme, it's basically how radio stations work.)

Until the law is fixed, DVDs will stick around, lingering on.

Maybe the HN crew wants DVDs to die. But none of my non-technical family has any problem with DVDs. They work in just about everything. They're easy to lend out. They're easy to find (both in stores and when sitting on a shelf in your house).

For my part, I still prefer DVDs because I actually like owning the disc. But more than that, I have a 25 Mbps FiOS connection and somehow at least once a week when I'm streaming something, Netflix dynamically changes the quality. It's more annoying than skipping due to scratch discs and the quality comes out terribly. I have no idea if Verizon's playing games, but as long as ISPs lose out with streaming media, I wouldn't want to bank on that business.

I'm not looking forward to a world without physical media where content providers and ISPs can dick us around with arbitrary pricing for content.

That's why I like iTunes, particularly now that they allow TV shows to be redownloaded so now I don't have to worry about using up a ton of space.

And what happens when Apple decides to (or is forced to) stop offering those shows for re-download? It's still a "licence" for you to be able to download them, not the same as physically owning a copy. (though slightly better, since you can just not delete the videos, and store them yourself)

Microsoft is perhaps the most business-savvy major tech company around. I for one am glad that we didn't have this kind of disaster back then -- Microsoft has always recognized and capitalized on its bread and butter: Windows and Office. These two are the workhorses, the crown jewels in the Microsoft empire, and almost everything else that Microsoft does is centered on strengthening the positions of these two cash cows. Splitting these into a separate entity would have been utterly ridiculous.

Again, Windows and Office are and always have been the lifeblood of Microsoft. You really think they should have decided to let someone else make all of that money in 1998 and retooled their whole business to keep only Hotmail? I think that would have been disastrous for MS.

Fact is, investors think differently. All you need to do is look at the stock price.

Not to mention the diminished role MS has with developer mindshare.

Obviously, Windows is a great cash cow and I'm not saying they should have spun it off. I'm saying a VP should have taken responsibility for it and the CEO should have focused most of his/her energy on the Web.

Content is everything... and Netflix is finding that losing Starz (and by proxy, Disney and Sony catalog) really really hurts.

Why did they lose Starz? Because they are too successful, and their suppliers are nervous about Netflix. Too many subscribers = too much cost.

To reduce their size they'll need to split the two services, and let each one compete directly.

To be honest, I would love to have Netflix's problems. Growing too fast and having to pivot your business model to keep your agility? Netflix is operating like a startup. Good for them.

1. I think that's your best point, and it's true that the real test will be if they can grow their streaming catalog enough.

3. It's not as if this HAS to be that way. In a blog comment Hastings said initially both sites would have all existing and current data. We're technologists here, is it hard for anybody here to imagine how sharing that data would work?

6. How will it be a distraction to now have a company that is solely focused on streaming -- which is the umbrella under which the original content is being created?

Wouldn't you agree that the economics of show-running fit a lot more acceptably into a business where the primary cost is content licensing vs a business where the primary cost is dozens of physical warehouses and massive USPS fees?

Regarding point 1. Netflix just created a huge discoverability problem. We ditched our streaming package and became a DVD-by-mail customer only. Not for lack of want or desire to be a streaming customer though. I'm just not all that crazy about paying their monthly fee for TV shows (I already have cable) and backlist DVD content.

We like movies. I can't see how we're not a target customer, but I can't get most new releases on Netflix streaming. Now that streaming and DVD-by-mail are separate companies, how will Netflix convert customers? With completely separate websites, what opportunities will exist to inform me that the movie I'm about to receive in the mail is also available through their streaming plan? I'd like to know that, because the moment they lock up deals for the content I want, I'd be on board.

> I can't see how we're not a target customer > I already have cable

Netflix is a direct competitor to cable. I don't have cable and I use their streaming platform exclusively. I am their target customer.

They'll have a tough time convincing the older generation to ditch cable. They know that. So they're ditching you, instead. As things move along, you'll end up in the minority. At least, that's what Netflix is hoping will happen.

I think you're probably right. I just found a website (feedfliks.com) that let's me see a lot of details about my Netflix usage. There are some pretty clear patterns there. Television shows, comedy specials, and the type of movie you'd typically see on TNT, FX, or AMC are available on Netflix Streaming. Theatrical release movies are not nearly as popular. So, you pretty much nailed it. Netflix wants to be Comcast. They don't appear to care much for their movie service customers.

As it turns out, I've been using giving Netflix money to be a company they don't want to be. Silly me.

And this is why Netflix' business model is doomed. There is no way for them to compete with Comcast, who already gets $50 each month for Internet alone.

There's just no way the content creators are going to give Netflix better terms than they give cable operators. None. Won't happen.

And Netflix cannot afford to pay what cable pays, because it's all added cost to them.

Netflix is between a rock and hard place, they know it, and they did the absolutely worst thing they could do. They should have just let things ride, milk the cash cow they'd created, and see how it plays out. Instead, they shot the cow, spilled the milk, and seem oblivious to the overwhelmingly negative reaction from their customers. sigh

"With completely separate websites, what opportunities will exist to inform me "

Your comment here is echoed all over HN and the Netflix blog.

Obviously being a separate website in no way prevents them from engaging in that sort of cross promotion. Strikes me as common sense. Comments like yours seem to imply an airgap between the two sites. I haven't read anything official that should suggest that.

That air gap is being created by Netflix. Why would they separate the sites and businesses so distinctly if their intention weren't to create an air gap?

Because they have fundamentally different cost structures, and each will benefit from a dedicated CEO who is accountable for results and responsible for strategy?

You really think that the respective sites will have no integration? Not a single-sign-on user account? Not an "Available on Netflix" link? Why? It makes business sense for both units and it doesn't impede any of the objectives of the spinoff.

It is not indicated via techcrunch, but in the original announcement it was explicitly stated there will be no integration and separate accounts:

"A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated."

http://blog.netflix.com/2011/09/explanation-and-some-reflect...

I agree with what you that it makes sense, but the message Netflix is delivering tells me that Netflix is headed in the opposite direction of what makes sense.

Regarding the API, Netflix announced several months ago that the API was going stop supporting DVD options all together: http://techblog.netflix.com/2011/06/upcoming-changes-to-open.... This makes me wonder how long they knew that this split was coming, or if it is just a coincidence.

This was discussed in this thread last night. http://news.ycombinator.com/item?id=3012244 ethank points out that the qwikster.com domain name was registered in May 2010.