Netflix and its big Qwikster gamble

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Broadcast all over social media and even sent to customers via email, Netflix spilled its plans to quietly spin off its DVD division into a self-contained subsidiary known as Qwikster. In doing so, Netflix CEO Reed Hastings is pushing forward a strategy to shield its cutting-edge media streaming business from a quickly graying DVD market.

Though Hastings didn’t explicitly mention this, it’s obvious that tracking, shipping, and handling physical discs is a big financial burden to Netflix. And once customers start abandoning DVDs with momentum, Qwikster price hikes will undoubtedly occur to balance costs (although many will remain latched on to DVDs the same way some folks are inexplicably married to AOL). In theory, these price hikes would not affect Netflix streaming-only customers, and Qwikster can eventually disappear at its own pace, similar to a dying leaf falling off a tree. The trunk simply says, “meh.”

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Will it work? It’s a huge gamble but Netflix has paid a huge public relations price in the last couple of months due to a number of business blunders, and its leadership has been forced to cauterize the company’s bleeding wounds.

Everyone knows on-demand is the future, and streaming is currently the way to go. Although movie studios are focusing their efforts on their own bottom line and ignoring the needs of consumers, I anticipate they’ll eventually come around in a few years. After a few botched attempts at rolling out their own complex, user-unfriendly media apps, studios will realize that sticking to content creation (not distribution) will better serve their customers and increase revenue over time. One only has to point out the biggest success story: iTunes.

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