Chastened Netflix Raises a White Flag: The Ticker

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By George Anders

Never mind. That was the central message from Netflix Inc. today, as it abandoned a short-lived plan to repackage its DVD rental business under a new brand name, Qwikster, which would be separate from the company's fast-growing online streaming service.

The proposed split had been announced Sept. 18. It annoyed customers, who didn't want to lose the convenience of lining up all their movie choices through one service. Investors didn't like the plan either. Netflix stock fell nearly 20 percent in the first two days after the breakup was announced, and subsequently didn't show much sign of bouncing back.

Netflix today provided only a few terse words of explanation for its retreat, saying that the split would have made things more difficult for members. Even so, the broader lessons of the company's U-turn are clear. Businesses thrive by making life easier for customers. Any strategy that overlooks that fundamental truth is likely to fail.

Netflix still faces a difficult balancing act, as it looks to make the most of streaming's opportunities while accommodating customers who rely on DVD rentals for at least some movie choices. Figuring out how to win in both arenas isn't obvious. Solving such challenges is how great managements earn their keep.

Until recently, Netflix's chief executive officer, Reed Hastings, was seen as one of the digital age's savviest leaders. The company's recent stumble hasn't helped his image. But investors cheered today's change of heart, bidding up Netflix shares more than 4 percent in early trading.

By putting the Qwikster mess behind him -- quickly -- Hastings has a chance of regaining his old stature.

(George Anders is a member of the Bloomberg View editoral board.)

-0- Oct/10/2011 16:31 GMT