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Netflix cans Qwikster

DVD rentals pulled back into streaming biz

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Netflix has canned Qwikster and will be bringing in the spun-off DVD rental operation back into the company's main business.

"We are going to keep Netflix as one place to go for streaming and DVDs," CEO and co-founder Reed Hastings blogged today.

"This means no change: one website, one account, one password… in other words, no Qwikster," he said.

Back in July, Netflix yanked its streaming and DVD businesses apart.

Previously, punters paid $10 a month for both, but from July had to pay 60 per cent more: $16 in total, $8 for streaming and, as a separate fee, $8 for DVDs. The latter would be handled by a new site, Qwikster.

The notion was to give users the choice and to help Netflix drive forward its streaming operation as the DVD side of things slowly falls by the wayside as consumers turn their backs on optical media.

But Netflix's subscribers really liked having both, and the move was widely seen by them and analysts as a major customer relations screw-up. The result: rather a lot of subscription cancellations, which Netflix allows users to do at any time. Netflix's share price took a pummeling too: down from a July peak of $300 to around $120 now.

Of course, while Qwikster will soon be no more, the price rise will stay, though subscribers can at least look forward to the promise that that rate being maintained for some time to come.

"While the July price change was necessary," said Hastings today, "we are now done with price changes."

Price rises were always on the cards: streaming rights are costly to acquire, and the process is far more complex than buying in DVDs, often requiring negotiations with film producers directly.

Buying more streaming content, from an ever broader array of suppliers, is going to cost Netflix more than it can afford from DVD rental fees, which have been subsidising streaming.

DVD costs will fall over time as fewer users take them - so Netflix needs to buy fewer discs - but clearly not enough to cover the rising expensive of licensing movies for streaming.

At least now punters are not being forced to choose between DVDs or streaming - they get both. Will they be willing to pay so much more for a re-integrated service? Hastings and Netflix shareholders must be praying they will. A proper apology for the summer's mess - absent from Hastings' blog post - might go some way to ensure they will. ®

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