The Case for the Netflix Split

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Netflix's announcement late last night that it would split into two separate companies has not been warmly received. As Megan McArdle put it, "The internet's collective reaction sits somewhere between foaming rage, and an enormous collective 'What the hey, Netflix?' " But at least one person thinks it's a smart business strategy. In an email to The Atlantic Tech, Columbia Business School professor Brett Gordon theorized that this may have been the right move:


As their streaming business continues to grow and will clearly outlast the DVD business, Netflix is trying to separate the two services into two brands. The Netflix brand name is strong, and they probably don't want that associated with the dying DVD business, hence the need to assign a separate brand name to legacy business. Separating the two from a consumer perspective will probably reduce customer confusion (e.g. through separate web sites each business will have a clear interface for customers) and perhaps allow them to tailor their pricing strategy for each business separately. Overall, this move demonstrates that Netflix is finally acknowledging that DVDs are slowly dying and they don't want the Netflix brand to be damaged by the inevitable death of physical digital goods.

Anyone convinced?

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Rebecca J. Rosen is a senior editor at The Atlantic, where she oversees the Business Channel. She was previously an associate editor at The Wilson Quarterly.

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