SAN FRANCISCO (MarketWatch) — It’s now almost two weeks since Netflix Chief Executive Reed Hastings sent out his hollow apology to customers, which included news of the stunning decision to separate its streaming and DVD businesses, and the brouhaha has quieted down.
Netflix CEO Reed Hastings in Buenos Aires on Sept. 7. The company remains under a cloud since announcing the split of its streaming and DVD businesses.
Except that the notion lingers that the company has made a fateful move with the split, which has so far slashed about 40% from the firm’s market value over the last couple of weeks alone.
Nearly every step Netflix Inc. has made along the way to stay ahead of the technological curve seems fraught with mistakes that have infuriated customers, to the point that Netflix had to cut back its subscriber forecast for the September quarter by 1 million. Its price hike may not even be irritating customers as much as the thought that if they keep both services, they will need to manage separate movie queues and set up different payment schemes. Read more about Netflix separating streaming business and DVDs with Qwikster.
Some believe even that the naming of the two businesses was mismanaged — to the point of picking the goofy and ill-fitting name Qwikster as the new brand of the slower, DVD-by-mail business.
“It is so bush league, so juvenile, so immature it feels intentional,” said William Lozito, chief branding officer of Strategic Name Development, a naming company in Minneapolis.
Another odd aspect that quickly came to light was the fact Netflix had not procured a Twitter account for its new name. Instead, the holder of the Twitter handle @Qwikster is a sometimes foul-mouthed man whose name appears to be Jason Castillo. A search for Qwikster on Twitter shows other related names, including @Qwikster Tweets and @Qwikster Rentals. But it’s not clear which Twitter account, if any, is being used by Netflix for its Qwikster business. A Netflix spokesman said that these questions will be answered when the company launches the new brand.
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In this era of social media, securing a Twitter name has become a key part of the branding process, Lozito noted, just like securing a URL and a Facebook page.
“It’s almost as if they were creating a video that is a spoof on how to change your company name,” said Lozito. “It should be something that ends up on YouTube that everyone gets a chuckle.”
So is Netflix purposely setting up its Qwikster business for failure? Recent comments by the company’s chief financial officer at a Goldman Sachs investment conference suggest that is not the case. He noted that another motive behind the separation move was to give the DVD-by-mail business more freedom and resources to market itself.
“It was increasingly difficult for those people who had built this great DVD service over the last five years to get resources, to be noticed and talked about and excited, attracting and retaining talent became harder,” Netflix CFO David Wells said last week.
Shares of Netflix, though, show investor frustration with the company’s subscriber losses, customer churn and at how poorly the company seems to be telling the story and explaining its rationale behind the moves, which appear to be motivated by the rising costs for streaming content from Hollywood studios, as well as the more competitive environment.
Since Netflix first announced its plans of its price hike on July 12, its shares have plummeted around 56%, after briefly nearing a peak of $300. On Wednesday, Netflix shares closed at $127.14.
In a recent analysis, Credit Suisse wrote that its expects the company’s streaming business to be the high-growth unit, while Qwikster will represent a higher-margin, but declining business.
“Over time, we expect streaming profits to increase rapidly,” driven by higher subscribers and higher international profits, wrote Credit Suisse analyst John Blackledge. He predicts the company’s U.S. streaming-only revenue will total about $2.5 billion in 2012, growing at a compounded rate of 19% to 2016 and international streaming will hit $251 million in 2012.
Qwikster, he forecasts, will end 2012 with about $1.8 billion in revenue, declining annually by 2% though 2016.
With the streaming business retaining the Netflix name, the company is hitching its future to streaming. Now some are wondering whether Netflix’s actions really mean it wants the DVD business to die a quick death, rather than the prolonged decline that some investors expect.
Therese Poletti is a senior columnist for MarketWatch in San Francisco.
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