Netflix: Splitting Up Was Always Part Of The Plan

Communication problems aside, Netflix's decision to break apart the business is part two of its plan for the future, a company spokesperson tells Fast Company.

Netflix's announcement that it is splitting its DVD service off into an entirely new business may have some wondering if that decision was a reaction to all the negative response to the announcement earlier this summer that it was raising rates on its hybrid DVD-streaming business. A representative for Netflix tells Fast Company that's not the case.

Splitting into two companies "was part of the natural progression Netflix has had in place for a long time," Steve Swasey, Netflix vice president of corporate communications tells Fast Company via phone. 

Asked if the decision to make the split was accellerated because of the reaction to the price hike—in addition to the vitriol, the company has also lost a million customers—Swasey said that wasn't the case. "We always planned to announce it in the fall," he said.

And indeed, if you read Netflix CEO Reed Hastings' blog post announcing the split, it becomes clear that the company has been thinking for years about what it needs to do to transition from the DVD rental business it started 14 years ago to the streaming business it needs to become in order to survive—and thrive—in the future. He writes:

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," Reed writes. "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.

Swasey chalks up public confusion about Netflix's intentions to the way it's communicated. The decision to split up the company "is not in response to any member comments. It's what we should have communicated [in July]," he says.

[Image: Flickr user dkwonsh]

E.B. Boyd is's Silicon Valley reporter. Twitter | Google+ | Email

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  • Andrew Case

    I just got a $829.99 iPad2 for only $103.37 and my mom got a $1499.99 HDTV for only $251.92, they are both coming with USPS tomorrow. I would be an idiot to ever pay full retail prices at places like Walmart or Bestbuy. I sold a 37" HDTV to my boss for $600 that I only paid $78.24 for. I use (Bidsget) . (com)

  • David Esrati

    Tom Peters long ago said "Stick to the knitting"- Netflix won over consumers because it was THE site for movie lovers. Screw the price hike- the first error was deleting user generated content- and the community on the site. The price hike hurt- but this- is the end of it.
    Netflix is now a commodity- anyone can stream. The studios can stream, Apple and Amazon can stream- where is the part that no one else could match- the DVD library that was better than anyone else? It's now Quickster? And the red envelope- what of that?
    This is new coke and "herb the nerd" all in one.
    All those movie lovers? Two different companies? What of the famous recommendation engine?
    What accountant came up with this plan? #FAIL

  • Michael Bouton

    I think Bruce said it well. Netflix differentiation was their ability to handle both types of media. Now what sets them apart from their competitors, especially since they lost Starz? Their suggestions sure aren't that great! 

  • Bruce Bensetler

    Do these people have a death wish? The handling of the price hike that was required by the business plan was managed in a way to do the most damage possible. It would have blown over and many people who had vented their spleen over the increased cost would have come back for the convenience. It's almost as if they were looking for another way to drive people away. Instead of becoming the Huffington Post of entertainment media they seemed to have decided that the best way to compete with everyone was to have two players in the game. Sort of like trading a Tom Brady for two backup quarterbacks to protect yourself against injury.

  • alan Cannefax

    Whether the decision to split was forward-thinking or reactionary doesn't really matter now. Three facts remain 1). Creating a new brand rather than extending the Netflix brand is the correct move 2). Doing so AFTER announcing a 60% rate hike and weeks of consumer backlash could be the biggest marketing blunder since [cliche alert] New Coke 3). Either way, after 10 years I am no longer a customer.