Netflix Kills Qwikster Before the Service Can Launch

Latest Change Result of Sensitivity to Increasing Customer Outrage

by Michael Reubelt on October 10, 2011

Just when you thought it was safe to stop paying attention to Netflix’s business plans, the company makes another bold move. This time, though, it may not create quite the vitriolic reaction from subscribers that previous announcements have. The much-maligned Qwikster service has been cancelled before it could really begin. Experts have lauded the move for helping rebuild customer support and for making sound business sense.

Netflix has had a tumultuous year. After an Internet report found Netflix streaming video accounted for 30 percent of all broadband traffic during peak usage hours, the company found itself with a dire long-term outlook. Movie studios, recognizing the profitability of the online streaming model Netflix created, increased their licensing fees to the point that Netflix was forced to levy a 60 percent subscription rate hike at a time when the average American income was dropping.

Unsurprisingly, customers were irate at the news, citing an increase in cost without any noticeable improvement to the service as the primary cause. This was only compounded by a September email from Netflix CEO Ned Hastings. “I messed up. I owe you an explanation,” apologized Hastings.

Perhaps that would have been the end of it then. However, that same email contained another unwelcome change: Netflix would be splitting into a streaming video service, which would keep the company name, and a new service, Qwikster, to handle the mail-in end of the business.

That garnered as much, if not more, criticism than the rate hike. Jokes about the name aside, the service was viewed as a means of separating the dying DVD business from the main company, leaving DVD users feeling left behind and unwanted.

“Consumers value the simplicity Netflix has always offered and we respect that,” said Hastings about the death of Qwikster, “There is a difference between moving quickly, which Netflix has done very well for years, and moving too fast, which is what we did in this case.”

The move has been praised by many industry experts, not least of which for helping to restore some faith in the brand for customers. It is makes sound business sense according to Gabelli & Co. analyst Brett Harriss, “Netflix has a major leg up on its competition, because it offers library titles via streaming and any title with a two-day delay through the mail. By separating them, Netflix would have allowed Apple and Blockbuster to compete with each portion of its business separately.”

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