Netflix Kills Qwikster, Abandons Plan For Separate DVD Rental Service

Responding to Consumer Anger, Both Streaming and DVD Rental Will Remain at Netflix.com

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Netflix Inc., reacting to customer anger, retreated from a decision to split its mail-order DVD service from its Internet streaming and will continue to run both from a single website. The shares climbed in early trading.

"Consumers value the simplicity Netflix has always offered and we respect that ," co-founder and CEO Reed Hastings said today in an e-mailed statement. "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."

Customers will be able to access the streaming and mail-order services from Netflix.com, with one account and password, the Los Gatos, California-based company said in the statement. Netflix on Sept. 18 said people who wanted DVDs would have to sign up for a new service called Qwikster, requiring a separate account and billing.

The change is an acknowledgement of the anger Netflix triggered in subscribers, first with a plan to raise prices and the subsequent Sept. 18 announcement detailing the separation of the services.

Netflix shares rose as much as 10% in early trading, after falling 4.9% to $117.21 on Oct. 7 in New York trading. The stock had tumbled 62% from its high in July before today.

On July 12, Netflix said people who want streaming and DVDs would have to pay $7.99 a month for each service, a 60% increase for people who previously got both. Today's statement didn't mention that price change.

"We've ruffled a lot of feathers," Chief Financial Officer David Wells said on Sept. 21 at a Goldman Sachs Group Inc. conference. The company has been "humbled" by customer reaction to the changes, he said.

Netflix on Sept. 15 cut its projected subscriber numbers for the third quarter by 1 million, a reflection of customer reaction to the price increase. Of those, the company said 9.8 million streamed movies, 12 million received both services and 2.2 million ordered DVDs by mail only.

John Malone's Starz on Sept. 1 said it was ending talks to renew a streaming accord with Netflix. Starz supplies recent Walt Disney Co. and Sony Corp. movies to Netflix for online viewing under a contract that expires in February.

Mr. Hastings in Sept. 18 blog post apologized for the company's handling of a July price change and also unveiled details of the plan to split the two businesses.

"I slid into arrogance based on past success," Mr. Hastings wrote at the time.

Explaining the split, he said the DVD and streaming operations "are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently."

Netflix posted the announcement of today's change in its plans on the corporate blog and also sent e-mails to its subscribers, according to the statement.

-- Bloomberg News

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