Hastings's Hasty Move: Netflix Splits in Two, Renames DVD Business

By Alexis C. Madrigal

Amidst a precipitous fall in the company's share price, Netflix CEO Reed Hastings has announced a drastic restructuring of his company. Netflix will be split into two separate entities. The Netflix DVD-by-mail service will be spun out and renamed Qwikster. The Netflix brand will only offer streaming filmed entertainment. Qwikster won't change much from the current Netflix offering, Hastings promised in his blog post, except that it will add videogame rentals.

In announcing the changes, Hastings provided a strange sort of historical rationale for his actions:

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something - like AOL dialup or Borders bookstores - do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.

Leaving aside whether it's wise to guide a company based on a hunch about history, there are a couple of indications that Netflix might be moving too fast. Number one is that they didn't secure the Twitter handle @Qwikster or the homophone domain Quickster.com. Based on his tweets, @Qwikster is a young male who likes to smoke pot more than he likes to tweet. Quickster is owned by a domain name squatter advertising various types of flooring.

I have to wonder if Hastings started to panic as Netflix stock nosedived last week. After peaking at over $300 during the summer, Netflix's share price is down to $155. It has lost almost a quarter of its value in just the past week of trading.

It'll be interesting to see if Wall Street reacts positively to the shake up because early returns on Twitter seem to indicate people aren't crazy about the splitting of the service or the new name.

This article available online at:

http://www.theatlantic.com/technology/archive/2011/09/hastingss-hasty-move-netflix-splits-in-two-renames-dvd-business/245273/