5 Things to Know About Netflix's New Qwikster

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Netflix splits into two companiesThe plot continues to twist at Netflix (NFLX).

The video rental giant revealed on Sunday that it will be dividing its operations into two distinct websites. Netflix.com will focus solely on its popular streaming service; DVD and Blu-ray plans will be swept over to a new website, Qwikster, that will officially launch in a few weeks.

Why is Netflix doing this? Is it true that the new disc-based service will begin offering video games? What's a complacent couch potato to do?

Let's go over a few of the things that subscribers and potential subscribers need to know.

1. The split will inconvenience subscribers receiving DVDs and accessing streams
Even though CEO Reed Hastings believes that "simplicity for our members" will be one of the advantages of splitting the plans, it certainly won't feel that way to the 12 million Netflix subscribers who pay for streaming as well as for mail-delivered discs.

For that half of Netflix's base of roughly 24 million subscribers, things will get more complicated and possibly less efficient.
"A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated," Hastings concedes. "So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn't show up on Netflix, and vice-versa."

Managing two queues will have other shortcomings. For starters, if the two sites truly won't be integrated, how will someone on Qwikster know that a DVD in the rental queue is available for streaming right away through Netflix? How will someone on Netflix.com know that a title that isn't in Netflix's growing digital vault is available on DVD?

What will happen to all of the movie ratings that users have contributed for years, rewarded in the past for their input by receiving customized recommendations?

In short, it's not just about paying two monthly bills or having to perform double duty in changing contact and billing information.

2. Games Are Coming -- But It Will Cost You

Qwikster will also offer video games for all three of the leading consoles, but it will come at a price: Just as Netflix presently charges a small premium for subscribers who wish to receive Blu-ray discs over DVDs when available, video games will also cost a little more.

The move is fair on the surface. Games cost a lot more than DVDs. They also have limited life cycles. No one is going to want to rent Madden NFL 12 when Madden NFL 13 hits stores next summer. Coinstar's (CSTR) Redbox kiosks charge a bit more for Blu-ray and video games. However, DISH Network's (DISH) Blockbuster Total Access -- the closest match to the new Qwikster service -- does not charge extra for Blu-ray or video games. Blockbuster knows that gamers will keep their titles longer than their movies, eliminating the costly roundtrip shipping.

3. Qwikster may not be all that quick
As a new brand, it may take some time to warm up to the Qwikster logo showing up on Netflix's signature red mailing envelopes. Ask around to those who slept through Hastings' Sunday night branding revelation, and Qwikster may as well be:

  • A social network site for sprinters.
  • A regional chain of convenience stores.
  • A peer-to-peer file-trading network for pirated speed metal songs.
  • One more company name to add to your spell-checker.

"We chose the name Qwikster because it refers to quick delivery," is Netflix's official explanation.

Through no fault of its own, it may not be entirely accurate.

In a $3 billion cost-cutting initiative proposed last week by the country's postmaster, first-class mail may no longer mean overnight delivery for local mailings. The two days that many Netflix disc-based customers usually have to wait between sending back a disc, Netflix swapping it out in one of its regional distribution centers, and receiving a new disc may stretch out a bit in a more cost-conscious future.

Slower Qwikster deliveries at the hands of a revamped postal system may drive users to the growing number of local and digital alternatives seeking more instant gratification.

4. The move is good news for Netflix's other 12 million subscribers -- and the rest of the world
Netflix expects to close out this month with 9.8 million streaming-only subscribers and 2.2 million accounts receiving only discs by mail.

This move will make things easier for them. Folks on the streaming plan won't be deluged with title searches that are only available on discs that they can't receive. Technophobes who only want to receive DVDs won't be teased with the promise of instant gratification.

The branding move will also make it easier for Netflix to expand overseas. Netflix rolled out into Canada last year -- and through Latin America and the Caribbean this month -- as a streaming service. Distancing itself from the disc-based Qwikster will create less confusion and more brand unity for its streaming product.

5. The breakup won't hit your pocket
There will be no more pricing changes beyond the ones that alienated some of its users earlier this summer.

Charging as much as 60% more to subscribers on dual plans -- while shaving $2 off the monthly rate for those exclusively on DVD -- appears to be it, for now.

"We're done with that," Hastings concedes -- and thankfully so.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. Motley Fool newsletter services have recommended buying puts in Netflix.



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Chris Peraino

Wal-Mart -VS- Netflix

We give up. You win. Give us your customers... Now that your stock price is @ $129.50

Earlier this week, we learned that as part of a settled class action lawsuit against Wal-Mart, Netflix customers are going to be paid $27.5 million to resolve claims that the company injured them by requiring Netflix to refrain from selling DVDs back in 2005. Now, $27.5 million is pretty small beans to the giant retailer, and you might think this is a non-story ... except for one thing. Somehow, Wal-Mart got the judge in this case to authorize Wal-Mart's payment of its debt in the form of Wal-Mart gift cards. To do this, of course, Wal-Mart needs the contact information for Netflix's 40 million customers, so that it can mail them their $0.68 each (minus attorney's fees) in "winnings."

Netflix is reportedly not thrilled with the idea. For $0.68 plus postage, Wal-Mart will gain access to Netflix's prized customer list. That's 40 million potential Vudu customers, all known to be interested in streaming videos, and many ticked off at Netflix right now, thanks to its having just raised their monthly fees by 60%. According to the most recent data, it cost Netflix $15.09 apiece to acquire each of its customers. To make matters worse, when Wal-Mart sends out those gift cards, you can bet your sweet petunias it will encourage recipients to visit Walmart.com to spend their loot. And once there, these customers will be greeted with invitations to switch to Vudu.

For a total cost of $1.12 per customer, Wal-Mart gets a chance to poach customers that cost Netflix 10 times as much to land in the first place. With the settlement due to go into effect in just a few months, Wal-Mart will be able to run its marketing campaign while the wounds from Netflix's price increase are still fresh.

Raise your hand if you think this "win" is good news for Netflix & the current $129.50 stock price?

September 20 2011 at 2:47 PM Report abuse rate up rate down Reply