Netflix: Fooled You! We’re Now Netflix and Qwikster, Stock Up 2.5%

Netflix (NASDAQ:NFLX) will separate its DVD-by-Mail service from its video-streaming service, a move the company hopes will give both businesses a better chance to grow. The move follows an announcement last week that Netflix expected to lose 1 million subscribers in the third quarter due to a 60% price hike for users of its most popular.

Super Hot Feature: Is Netflix the Next Research in Motion?

The DVD-only service will be called Qwikster, and will add video games to its current movies and television shows, according to a blog post made yesterday by CEO Reed Hastings. The streaming service will keep the Netflix (NASDAQ:NFLX) name. In his blog post, Reed apologized for not having explained thoroughly Netflix’s decision to separate its DVD and streaming packages, and in explaining the move to separate into two businesses, said that the two services had different cost structures and marketing needs that would be better served if they were to operate separately. The following is an excerpt from Hastings’ blog post:

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

Hastings will stay on as CEO of Netflix (NASDAQ:NFLX), while Andy Rendich, who has led the DVD operation for four years, will be Qwikster’s CEO. The two services will have separate websites, and customers will receive unique credit-card charges from each. Qwikster will be up and running “in a few weeks”, offering video games for Nintendo’s Wii console, Sony’s (NYSE:SNE) PlayStation 3, and Microsoft’s (NASDAQ:MSFT) Xbox 360 consoles, said Hastings. There will be no further pricing changes.

In closing, Hastings wrote in his blog post that “we will be better at streaming, and we will be better at DVD by mail”, emphasizing plans to add substantial new streaming content in the next few months, and to improve both services in whatever way possible.