Netflix's decision to split its business into separate streaming and DVD entities has gotten boos from its users, but co-founder Marc Randolph thinks it's a brave and smart move.
Netflix managed to tick off a sizable number of subscribers this summer with its decision to raise prices on certain plans. In a mea culpa issued early last week, CEO Reed Hastings finally admitted the price hike was poorly orchestrated and communicated.
But in the same breath, Hastings announced that the company's operations would be split into two separate businesses--Netflix to provide the streaming content and Qwikster to handle the DVD rentals. That decision kicked up yet more complaints from both subscribers and investors questioning the logic of such a move.
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At a time when Hastings may be feeling that no one is on his side, his fellow Netflix co-founder Marc Randolph has risen to his defense.
In a blog published Monday, Randolph said that he completely supports the Qwikster decision, calling it "one of the smartest, most disciplined, and bravest moves I've ever seen."
Randolph was the founding CEO of Netflix, executive producer of its Web site, and a board member until retiring in 2004, so he certainly has an insider's view of what it's like to run the company. Trying to explain the challenge of operating two different businesses under one roof, Randolph said that in the early days Netflix both rented and sold DVDs. Though the DVD sales were booming, the company found it difficult to maintain sales and rentals, forcing it to make the hard decision to pull the plug on the sales end to focus on the future of the rental side.
The Netflix of today faces a similar challenge, says Randolph, by trying to operate both streaming and DVD rentals under one single company.
"I can easily imagine the growing frustration they must have felt these last few years as they made decisions they knew were suboptimal for the streaming business in order to maintain compatibility with the DVD business," wrote Randolph. "How to work out pricing that covers multiple use cases. How to come up with messaging that embraces two different ways to receive movies. How to manage the significant differences in the content available between the two services. How to simplify the landing page and sign up flow."
But by splitting itself in half, Netflix will be able to better focus strictly on the streaming side, which it sees as the future, according to Randolph.
Of course, the Netflix co-founder agrees that the company screwed up in the way it failed to communicate the price hikes and the Qwikster launch. These moves both upset customers and have damaged the Netflix brand.
"But should fear of either of these things have prevented Netflix from taking this step and ensuring that their streaming service has every possible advantage going forward?," asked Randolph. "Absolutely not."