Netflix axes Qwikster; kills plan to split in two

— -- Netflix is hitting the rewind button on its business plan.

After listening to consumer outcry, Netflix CEO Reed Hastings announced Monday that the company was backtracking on a plan to separate its DVD rental and streaming businesses.

"It is clear that for many of our members, two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs," read his post on the company's blog (blog.netflix.com). "This means no change: one website, one account, one password… in other words, no Qwikster."

Hastings' announcement last month to spin-off Qwikster to handle DVD mail rentals — while Netflix became the streaming-only company — had become the firm's "New Coke" moment. "Let's see if they can get past it as well as Coke did," says interactive media expert Shelly Palmer, author of Overcoming the Digital Divide.

Netflix has made a series of very public missteps recently. In July, Netflix raised its prices for unlimited DVD and unlimited streaming subscriptions. Previously, unlimited DVDs and streaming cost $9.99 monthly; the new price is $7.99 for each.

Then last month, after apologizing for not explaining the need for the price hike, Hastings announced the plan to run Netflix and Qwikster on separate web sites.

Such a move would inconvenience consumers who "made their voices heard," says BMO Capital Markets' Edward Williams. "That caused the management team to take a step back and reconsider the speed with which they were going to separate the businesses. Clearly people enjoy the simplicity of having only place to go for their streaming and disk content."

Shares of Netflix have fallen from nearly $300 on July 11, the day before the price changes, to $111.62 Monday. Netflix has said that it expects to lose 1 million of its 25 million subscribers because of the pricing changes.

To repair its image, "Netflix needs to maintain the course and not do anything stupid over the next couple months," says Ted Marzilli of YouGov BrandIndex. Improve its streaming content, he says, and "people will forget about this."

Could the miscues mean trouble for Hastings? Neither Williams nor Wedbush Securities' Michael Pachter think so. "Not a prayer," says Pachter. "He's rock solid."

But Richard Pomerantz at The Strategy Group is not so sure. "Can the company ever get back the credibility that it once had … if the leadership or the face of the company remains the same?"