Netflix Spins Off Mailing DVDs

Having increased its monthly fees on some plans, Netflix saw a decline in people wanting its services. Then it saw a decline in its stock value.

On Sunday night, CEO Reed Hastings announced that his company sent an email to customers that begins, "I messed up. I owe you an explanation." Typifying the transparency that is legion in Silicon Valley startups, Hastings explains that many "members felt we lacked respect and humility" when they announced an increase for those who wanted to stream movies as well as get them in the mail.

Spinning off the direct-mail DVD business will serve those 14.8 million subscribers (down 200,000 this month) best by allowing Qwikster, the new company, to focus on getting the newest titles to consumers the quickest.

Qwikster has added a video game upgrade as well, similar to the Blu-ray service for movies, so users can rent Wii, PS3 and Xbox 360 titles. and will not be affiliated in any way for consumers -- a "negative" according to Hastings.

An additional explanation, replete with a video blog, is here.

Cannibalizing a successful business model has proved to work, as long as the company is pursuing market demands -- and it innovates. Just look at Apple.

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