Netflix, one of the best-known entertainment brands, has decided to split services. The old Netflix will become just video streaming whereas the beloved DVD-by-mail service is to be redubbed Qwikster. The new service will also offer video game rentals.
Netflix CEO Reed Hastings, in a note to customers, said the divorce is necessary and best for the Los Gatos, Calif.-based company.
There's no question Netflix is responding to a problem, brands specialist Clive Chajet told IBTimes. The best way to communicate with their target audience is to change the name.
Now the stock market and Netflix's millions of customers will have their vote. Here are three reasons why it acted now:
Netflix's shares have fallen too much. In the past three months, including the period during which the company announced new charges for subscriptions that boosted fees, the shares have lost 37 percent of their value. On Friday, they closed at only $155.19.
Netflix shares set a 52-week high of $304.79 in July. That was their peak since the company's 2002 IPO and perhaps was too high.
The fall leaves the company with enterprise value of $8 billion, which could tempt a bidder seeking its rich customer base. Nearly 90 percent of Netflix shares is owned by large institutions.
Other entertainment services are flourishing. Netflix may claim about 25 million subscribers, which doesn't include how many cancelled following recent price hikes, but other sites are doing well, including Hulu, itself for sale by its media owners; free media and special for-pay services offered by the cable providers like Comcast and TimeWarner, as well as specialized services like Verizon Communications' FiOs.
Netflix, which still counted so much on the U.S. Postal Service under a formula adopted more than a decade ago, needed to find a way to boost prices without annoying its customers. Other services, such as Sirius XM Radio, the for-pay radio service, have just announced their first increases in years and seem to be succeeding.
Amazon, too offers streaming, and is not suffering at all. Apple has Apple TV.
Taking advantage of fourth quarter sales. By custom, the fourth quarter is huge in the media business. Hollywood releases major new titles for next year's Oscars. Titles released earlier in the year go to DVD. And the TV broadcasters generally launch their fall seasons with new shows.
If Netflix wants to maintain its grasp on the market, the company needed to act now, especially since Hastings promises the split between Netflix and Qwikster will take place in a few weeks.
Subscription fees, renewals and customer numbers will prove if the move will work. CEO Hastings, a Facebook director, will need all the help he can muster from his friends in living rooms and on laptops.