Qwikster Split: The Real Reason Netflix Broke in Two

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It’s not hard to understand why Netflix decided to change its subscription plans over the summer, breaking apart the popular DVD-and-streaming combo into two services paid for separately by members. Streaming content via the web and sending DVDs by mail are two very different businesses, after all. It’s also easier to understand why Netflix CEO Reed Hastings apologized for how poorly the changes were explained (or not) to customers. Harder to understand is why Netflix finds it necessary to separate the operations into two distinct companies, and why it would go to the trouble of creating a whole new DVD-by-mail brand, Qwikster.

Why, for example, wouldn’t the DVD service be renamed something along the lines of Netflix DVD, to keep the brand in the family, so to speak?

One possible answer is that one of Netflix’s current services—DVD by mail, most likely—could be sold off down the line, says Tom Adams, principal analyst and director of U.S. media for the media research firm IHS Screen Digest. “The splitting up and re-branding going on at Netflix was certainly a surprise,” says Adams. “But it’d make sense if they envision selling one of the divisions off at some point. That’d be much easier to do if the businesses are completely separate, with different names and brands.”

Of course, a brand is more valuable once it’s established, and with its announcement over the weekend, Netflix has already begun building up Qwikster. Qwikster has its work cut out for it: Even with the name change and status as a separate business, everybody will surely call it Netflix for some time to come.

(LIST: 12 Things You Should Stop Buying Right Now)

In the short run, separating Netflix (streaming) from Qwikster (DVDs) into different companies—with different websites, queues, ratings, and billing schedules—is bound to accelerate a trend that began as soon as Netflix’s new pricing structure was announced in July. “It’s going to force customers to choose one service or the other,” says Adams. “Fewer people are going to want both, especially because of the annoyance of having to keep up with them separately now.”

Customers have one other choice, of course: neither Netflix nor Qwikster. Roughly one million Netflix customers canceled their memberships since the new pricing structure went into effect this month.

MarketWatch’s Brett Arends is one such former Netflix subscriber. Arends explains that he had sorta forgotten he had a Netflix account—until the company’s pricing plan changes made news over the summer, prompting him (and lots of others) to cancel. (In his column linked above, Arends also explains why he’s not a fan of Netflix stock at the moment, either.)

(MORE: Netflix After the Price Hike: Fewer Subscribers, Plummeting Stock Price)

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