Netflix to split digital, physical DVD operations

Netflix ( NFLX ), the company which put the final nail in the coffin of bricks-and-mortar video stores around the country, is now shoving its own physical DVD department out the door. It will split into two businesses - Netflix, which will focus on streaming movies and TV shows, and Qwikster, which will deliver physical media. In addition, Qwikster will bring videogame rentals to the Netflix family, emulating services like Gamefly which allow players to rent console games and play them on the Microsft ( MSFT ) Xbox 360, Sony ( SNE ) Playstation 3 or Nintendo Wii.

Netflix shares rose during the first half of the day but then dropped off durning a general across-the-board slump in U.S. stock indices.

The move follows the separation of Netflix's streaming and DVD delivery offerings into two separate subscriptions, effectively raising the price of the service, causing a massive uproar in its consumer base and hammering its share values as Wall Street predicted it would lose subscribers.

The company's chief executive officer and co-founder, Reed Hastings, wrote an apologetic blog post on Sunday, beginning "I messed up. I owe everyone an explanation. It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming, and the price changes."

After apologizing for "arrogance," Hastings described the new structure, which will create two companies with two billing accounts for the average customer who wants both physical discs and streaming service, but will retain the same total price and an expanded range of service.

It's quite possible to view this as a small tremor from a tectonic shift in the way the developed world consumes media - though it's also a return to an older model. For much of the 20th century, mass entertainment was consumed as a service, with radio shows and music beamed over the air and, later, the rise of the television as the central entertainment appliance. Towards the latter half of the century, entertainment became more commodified, in the sense that it was possible to purchase individual physical items - records, 8-track cassettes, VHS tapes, CDs and DVDS - which stored albums, movies and TV shows.

That commodity-based model persisted until the widespread introduction of broadband internet, which began pushing the service model back to the fore, as streaming services like Netflix and Hulu battled with free - and illegal - downloads of the formerly commodity-bound content across Napster, Limewire and BitTorrent.

It would not be at all surprising to see Qwikster start strong but then slowly fade away, as internet bandwidth continues to grow and a generation raised on records and tapes gives way to those accustomed to YouTube and Hulu.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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