The encyclopedia · Strategy & Leadership · Strategic decision · 2011
Netflix split its DVD business into Qwikster, losing 800k subscribers in three weeks
Netflix announced a confusing price hike and a separate DVD brand called Qwikster. Customers revolted, canceling 800k subs before launch.
Netflix · 2011-07-18
What happened
On July 18, 2011, Netflix CEO Reed Hastings announced a drastic restructuring: splitting the company into two distinct entities. The streaming service would remain under the Netflix brand but see a 60% price increase to $7.99/month. The physical DVD rental business would spin off into a new, standalone company called 'Qwikster,' charging an additional $8/month for DVDs only. The goal was to clarify financial reporting and allow each business to pursue different growth strategies.
The market reaction was immediate and brutal. Investors and subscribers viewed the announcement as a betrayal of the brand's value proposition. The pricing structure was perceived as complex and punitive, effectively doubling the cost for customers who wanted both services. Within days, stock prices plummeted by nearly 35%, wiping out billions in market cap.
Faced with massive public backlash and a wave of cancellations, Netflix reversed course just three weeks later. The Qwikster rebrand was scrapped, and the companies remained unified under one name, though the price hike for streaming remained. The incident became a textbook example of poor change management and the danger of ignoring customer sentiment in favor of internal accounting logic.
Why it happened
- Hastings prioritized internal financial clarity (separating revenue streams) over customer experience and brand coherence.
- The announcement lacked empathy; it framed a significant price hike as a neutral corporate restructuring rather than a value exchange.
- Testing failed to capture the emotional impact of the 'Qwikster' name, which sounded cheap and disconnected from the trusted Netflix brand.
- Communication was unilateral and abrupt, giving no room for customer feedback or gradual transition.
The lesson
Internal accounting structures should never dictate external customer branding. If a rebrand confuses your users or feels like a hidden fee, they will leave before you explain the rationale.
Aftermath
Netflix kept the streaming price increase but abandoned the Qwikster split. The company eventually merged the businesses back together operationally, focusing on content investment. Hastings later admitted in interviews that the communication was 'the worst' he had ever seen and acknowledged the strategic misstep.
Sources
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