Over the past day or so, tech pundits have ranted and raged over Netflix’s decision to spin-off their DVD business into a separate entity named Qwikster. Just a quick glance at TechMeme reveals thoughts from TechCrunch, Gizmodo, Technologzier, PC World, CNN Money, Fast Company, VentureBeat, GigaOm, Mashable, and many more. Just about every one of these stories simply reiterates on the other with no value added. Interestingly enough, there is something I have not heard being said and it is also what I am hearing from a source: Qwikster is a setup for sale.
Why? Many reasons. The logic makes sense if you evaluate the current situation. The DVD portion of Netflix’s business is getting awfully expensive to operate while the streaming portion is becoming more and more affordable thanks to the advancements in cloud offerings. According to Bloomberg Businessweek, streaming a movie in late 2010 only cost Netflix about 5 cents — mailing out a DVD easily costs 10 times more. Not to mention the USPS, whose largest customer is Netflix, continues to raise prices and there is a good chance the entire organization may completely shut down by the end of the year. Switching to FedEx or UPS would cost a fortune.
If Netflix were to continue offering DVD-by-mail, it would hold them back from focusing their on-demand streaming business. The stock price is now down by nearly 50% less since the company’s highest valuation earlier this year in July. Netflix could immediately cut losses and kill the entire DVD business, but that would cost a fortune and leave the brand name extremely tarnished.
Creating Qwikster makes sense — though a better name could help. This subsidiary is now buyable. Though finding investors or a buyer is probably quite difficult, merging Qwikster with a company like Coinstar’s Redbox is a possibility. Just take a look at Motorola’s decision to split into Motorola Solutions and Motorola Mobility. Google would have never acquired the latter if the company never separated.
DVDs are definitely not the future, but millions of customers will continue to use the service for at least another few years. After all, people still sadly pay to use AOL for instance. Qwikster may now have game rentals for a fresh taste, but even the notion of games-by-mail is getting old. For instance, services such as Steam or OnLive makes new titles available to download or stream, respectively. Qwikster is definitely a business destined to fade away over time, but the question is: who wants to make some money off it until then?