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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E.B. Boyd (@ebboyd) has holed up in conference rooms with pioneers in Silicon Valley and hunkered down in bunkers with soldiers in Afghanistan.