With Customers Fleeing, Netflix Explains Itself

When Netflix announced what is essentially a price hike for its DVD and streaming services in July, customers reacted with outrage. I noted that we'd know whether that outrage was real or faux in the near future when Netflix's subscriber numbers either did or did not change.

It's real.

Last week, Netflix revealed that it expects to lose more than 1 million of its 25 million customers because of the price hike. The company had previously announced a plan to separate its DVD movie shipping service from its online video streaming service, effectively raising the price on both collectively by about 60 percent.

In a letter to customers, Netflix Cofounder and CEO Reed Hastings apologized for the way in which it raised prices, suggesting that it did so in an unclear, HP-esque way. (Yes, I just coined that term.) "It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes," he wrote in an open letter to customers that was delivered via email. "That was certainly not our intent, and I offer my sincere apology."

Hastings then (re-) explained the changes, noting that Netflix feared it wouldn't be able to make a successful transition from DVD shipments to online video streaming. These services have essentially evolved into two completely different businesses, Hastings noted, and as a result, Netflix will be renaming its DVD shipment service to Qwikster in the coming weeks.

"We chose the name Qwikster because it refers to quick delivery," he wrote. "We will keep the name 'Netflix' for streaming."

The Qwikster service will be available from a new website, and as before, DVD shipments will be a standard feature. Blu-ray discs will still be an added-cost option, and the company is adding video game rentals—for PlayStation 3, Wii, and Xbox 360—as a similar option.

Prices for both services will remain the same. That is, Netflix isn't raising (or lowering) prices on either service since the last, controversial price change.

For more information about Netflix's apologies, explanations, and changes, please visit the Netflix blog.

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