Netflix to split into two companies; welcome Qwikster (and video game rentals, too)

Netflix CEO Reed Hastings announced Sunday night on his blog that the 12-year-old movies-by-mail service is splitting in two.

Soon, the movies-by-mail service will be rebranded as Qwikster. The web streaming service will be continue to be called Netflix.

Qwikster will also offer video game rentals for Xbox 360, PlayStation 3 and the Nintendo Wii systems.

“Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series,” Hastings wrote. “I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.”

Hastings said the company realized that the streaming and DVD by mail service are now quite different, with quite different cost structures, so that’s why “in a few weeks”, the new DVD Qwikster service would launch.

This news comes after Netflix angered its customer base with a 60 percent rate increase, going from as little as $10 per month to at least $16 if you wanted to stream and rent movies. Management at Netflix and industry analysts are predicting that the company will end September with 600,000 fewer customers than it had in June.

That will be only the second time in 12 years that Netflix has lost subscribers from one quarter to the next. Last time? Go back to 2007, when Hastings’ company dropped 55,000 members from March through June.

Netflix shares dropped 19 percent, to $169.25 last week — or 40 percent less than when the price increase was announced.

Netflix is also getting hit on the content side, as Starz Entertainment decided to no longer license rights to Netflix, a decision which will take effect in March, 2012.

Starz controls pay-cable rights to movies from Walt Disney and Sony and has had an agreement with Netflix for three years. Since then Netflix — which also gets movies from Paramount, Lionsgate and MGM — has ballooned to 25 million subscribers, who watch the service, via the Internet, on TVs, tablets and smartphones.

So far, HBO has not signed a deal with Starz, keeping content from 20th Century Fox, Universal and Warner off the Internet service.

Why? Consider Starz is $12 to $16 per month on many cable and satellite services, but Netflix streaming only is $7.99 per month. Earlier this year, perhaps to help combat that discrepancy, Starz began a 90-day delay from an original series episode’s premiere until its availability on Netflix.

Moving forward, Netflix customers will have to deal with two websites, and to handle billing and other account issues, Hastings wrote in his blog. Customers will also have to search and rate movies and other content on each site separately.

This news comes at a time when Netflix is about to gain some serious competition in the online streaming business, as it already faces competition from services like YouTube and Hulu Plus.

This week, Dish Network is expected to announced a movie-streaming service. Dish bought Blockbuster for $320 million earlier this year.

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