Netflix Admits Arrogance, Splits off DVDs

After weeks of getting tumultuous responses from consumers, Netflix CEO Reed Hastings has given a big apology for the way the company announced its division splitting.

In a blog post, Hastings gave consumers a better explanation as to why it was separating the DVD and streaming divisions. In the previous announcement, which occurred a few weeks ago, Netflix said the $9.99 price for both DVD and streaming services was no more and the company was charging consumers $7.99 each for both.

Hastings said the company received many complaints which said there was a lack of respect and humility in the way it made the announcement. He said that wasn't the company's intent and he offered a full explanation of the move.

In hindsight, I slid into arrogance based upon past success. We have done very well for a long time by steadily improving our service, without doing much CEO communication. Inside Netflix I say, 'Actions speak louder than words,' and we should just keep improving our service, Hastings said. But now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn't have changed the price increase, but it would have been the right thing to do.

Hastings went on to explain the move better. He said the two divisions are becoming two separate entities. This became obvious to Netflix's brass in the past year. He noted how the company wanted to improve and invest in its streaming technology as that market evolves quickly without having to maintain compatibility with its DVD by mail service.

Hastings then announced it was splitting off and changing the name of its DVD by mail service to Qwikster. The name comes from the company's ability to deliver the DVDs quickly. It will be the same exact website and DVD service as before with a new name to separate it from the streaming service, which will maintain Netflix's name.

In addition, Hastings said Netflix is adding video games as an option for Qwikster consumers. Qwikster will be launched on a new website within the coming weeks.

Qwikster will operate as its own company with CEO Andy Rendich, who has headed up the DVD service for 12 years, as the man in charge. Hastings admitted the changes might be a little tough to get used to at first.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that distinctive red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be the same for many of you, Hastings said.

Hastings admitted the company may be moving fast on this move but it just wants to improve both services without leaving one behind.

It's clear the company is looking at streaming as the future of its business. However, analysts have noted Netflix may struggle in a bidding war with financially well equipped companies like Amazon, Google and Microsoft for content licensing. All of those companies have been rumored to acquire Hulu, which has its own streaming content service. Content licenses will likely rise from $180 million in 2010 to $1.98 billion in 2012 according to Michael Pachter, analyst at Wedbush Securities.

Getting more content will be critical for Netflix immediately says JP Morgan analyst Doug Anmuth. He expects the company to make some investments right off the bat.

Netflix's shares jumped more than 3 percent in early Monday trading before falling back nearly 5 percent to $147 near the close. The shares set a 52-week high of $304.79 two months ago.

Follow Gabriel Perna on Twitter at @GabrielSPerna