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When Netflix announced a price hike in July, almost 600,000 members cancelled their subscriptions. After the announcement, the company’s stock value plummeted by almost half in just a few days. Starz Entertainment, one of Netflix’s biggest source of new movies, decided not to continue its deal with Netflix.
Moreover, the decision by Reed Hastings, co-founder and CEO of Netflix, to split the company angered even more subscribers. The company announced that it would separate into two companies on September 18, 2011. Netflix will continue online moving streaming, while the new company, Qwikster, will take care of DVD rentals.
The announcement was part of an apology letter from Hastings in response to the price increase for its services. Before, subscribers paid $10 a month for both DVD rental and online movie streaming. Netflix split the services, and subscribers would pay $7.99 a month for DVD rental and the same additional cost for movie streaming.
That would bring the total to $15.98 if subscribers wanted both, a price increase of almost 60 percent.In his letter, Hastings started with three words: “I messed up.” A video featuring Hastings and newly-named Qwikster CEO, Andy Rendich, soon followed. Hastings apologized again, and offered an explanation for the separation of services.
He addressed the strengths of streaming, and said that DVD and streaming would become more and more different in the future. “We think that the DVD service needs its own brand so that we can advertise it,” said Hastings. Rendich, who was the Chief Service and Operations Officer at Netflix, explained that Qwikster would be the same Netflix DVD rental service that is currently in place, just under a different name. Qwikster will also begin a video game rental service.
Even though Netflix has received mostly negative responses from members, there is some support for the decision. Marc Randolph, the other co-founder of Netflix, said the decision was a good one. “Not only am I completely in support of what Netflix is doing, but I think it is one of the smartest, most disciplined and bravest moves I’ve ever seen,” he wrote on his blog.
Things may be looking up for Netflix. On September 25, Netflix and DreamWorks Animation SKG Inc. announced that they had signed an agreement. The contract is estimated to be worth almost $30 million per movie, and does not state how many years the deal is effective. However, Netflix will not begin streaming movies until 2013, when it will stream DreamWorks titles released in 2013, as well as certain DreamWorks titles.
The agreement would add to Netflix’s library of movies, which currently stands at 20,000 titles. That is almost twice as much as its biggest competitor, Amazon Prime. Just after Netflix announced its deal with DreamWorks, Amazon and 20th Century Fox closed their own deal, which is estimated to be worth $100 million, and would add 2,000 titles to their library.