October 10, 2011, 10:44 AM

Netflix retreats from plan to split its business

Netflix cancels plans to spit its DVD rental and streaming plans into separate businesses.

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It was a short-lived plan at Netflix Inc. to split its DVD rental and digital entertainment services into separate business units.

In a terse posting on the Netflix corporate blog this morning, CEO Reed Hastings says Netflix, No. 13 in the Internet Retailer Top 500 is now canceling plans to remake Netflix into two divisions and rename its DVD and Blu-ray disk rental program as Qwikster.

Netflix, which only announced the plan Sept. 19, is keeping the company as one operation in the wake of complaints from subscribers over having to maintain two separate accounts, one for renting DVDs by mail and another for streaming or downloading TV shows and movies online.

"It is clear that for many of our members two web sites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," Hastings says in his posting. "This means no change: one web site, one account, one password." By splitting the company into two groups and giving each its own pricing strategy, Netflix would have been better able to manage change in the rapidly evolving and competitive digital entertainment market, the company says. But consumers didn't respond to Qwikster or a recent controversial price change.

In July, Netflix said it was eliminating a combination DVD-by-mail and unlimited streaming rental plan priced at $9.99 in favor of offering consumers the option to subscribe to either format for $7.99 each. If customers want DVDs by mail and streaming they now have to subscribe to both and pay a minimum of $15.98 per month to have one DVD checked out at a time and access to unlimited streaming.

But the change in pricing has been unpopular with current and would-be subscribers and Netflix is done making any more controversial changes for now, says Hastings. "While the July price change was necessary, we are now done with price changes," Hastings says in his posting. "We value our members, and we are committed to making Netflix the best place to get movies and TV shows."

Netflix will release its third quarter earnings on Oct. 24, but the company is already telling Wall Street that it is projecting fewer new subscribers. Hastings says the company is projecting the number of new subscribers for streaming digital content will total 9.8 million in the third quarter compared with an earlier projection of 10 million. The number of projected subscribers with both DVD-by-mail and unlimited streaming is expected to be flat at 12 million while the number of new DVD-by mail subscribers is expected to be 2.2 million, down from an earlier forecast of 3 million subscribers.

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