Netflix CEO Reed Hastings posted his version of a mea culpa on the company’s blog early this morning pulling the plug on dividing up online video streaming and DVD-by-mail rentals:

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.

This means no change: one website, one account, one password… in other words, no Qwikster.

While the July price change was necessary, we are now done with price changes.

We’re constantly improving our streaming selection. We’ve recently added hundreds of movies from Paramount, Sony, Universal, Fox, Warner Bros., Lionsgate, MGM and Miramax. Plus, in the last couple of weeks alone, we’ve added over 3,500 TV episodes from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel, TLC, SyFy, A&E, History, and PBS.

We value our members, and we are committed to making Netflix the best place to get movies & TV shows.

Hastings doesn’t come out and directly say his decision to split streaming and DVD rentals was a mistake, but the intended audience for his short blog post is clear — the tens of thousands of customers upset about the company’s recent price and plan changes.  Many have complained Netflix lacks current movie titles available for streaming, and news reports indicate the company is on the verge of losing a key supplier of the current content Netflix does have — Starz.

But Hastings has not pulled back completely from the idea of dividing the streaming and movie rental services Netflix offers.  In a news release read by investors, Hastings said the problem wasn’t that Netflix sought to separate the services, it was that they tried too fast.

“Consumers value the simplicity Netflix has always offered and we respect that,” said Hastings. “There is a difference between moving quickly – which Netflix has done very well for years – and moving too fast, which is what we did in this case.”

For Sale?

A Wall Street analyst predicts Netflix’s recent announcement to separate itself from its DVD-by-mail rental service (now run independently as ‘Qwikster’) is the first step in selling its online streaming business to Amazon.com.

Michael Pachter, of Wedbush Securities raised his buy rating on Netflix stock, claiming the company could be on the verge of a lucrative sale of its increasingly-important streaming business to the online retailer:

Pachter said that Amazon has always wanted to be in the video-streaming business, but has been hampered by tax considerations due to state sales tax issues. Most states require companies that have physical operations in those states to collect sales taxes on transactions done within those states.

Amazon has so far been able to get around most of those sales-tax issues by virtue of its being an online retailer. Pachter said Amazon would likely have had to begin collecting state sales taxes had it purchased Netflix outright because that company has a wide network of distribution centers across many states.

However, Pachter said a separate video-streaming business from Netflix is more appealing to Amazon, as the company could still avoid enforcing the state sales taxes, and dramatically increase its own video offerings.

“If Amazon were to acquire only Netflix’s streaming business, it could triple the size of its content library, and gain traction as an industry leader,” Pachter said. “Netflix’s streaming has current content deals that provide it with access to movie content during the premium cable TV window, and Amazon has the financial resources to secure additional streaming rights.”

But not every analyst is convinced Pachter is on the right track.

Brett Harriss, an analyst with Gabelli & Co. in Rye, New York, told Bloomberg News that potential buyers are more likely to wait until Netflix gets cheaper before making a bid.

“At some point, this does get cheap,” Harriss said in an interview. “But I don’t think we’re down there yet.”

Other analysts think the concept of a sale is correct, but the buyer is all-wrong.

“The name that would pop in my mind first is Google,” Tim Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, told Bloomberg. “Google loves to throw money at ideas and companies that they think have the potential to be game changers and become major players.”

[flv]http://www.phillipdampier.com/video/CNBC Netflix Feeding Frenzy 9-21-11.flv[/flv]

Netflix Feeding Frenzy: The vultures are circling as analysts on CNBC pound Netflix’s recent price and service plan changes as this compilation of reports illustrates.  (18 minutes)

Get ready for Qwikster

Netflix CEO Reed Hastings apologized this morning on the company’s blog for the perceived lack of “respect and humility in the way we announced the separation of DVD and streaming, and the price changes,” imposed on customers this month.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD, plus lots of TV series. We want to advertise the breadth of our incredible DVD offering so that as many people as possible know it still exists, and it is a great option for those who want the huge and comprehensive selection on DVD. DVD by mail may not last forever, but we want it to last as long as possible.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We feel we need to focus on rapid improvement as streaming technology and the market evolve, without having to maintain compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently. It’s hard for me to write this after over 10 years of mailing DVDs with pride, but we think it is necessary and best: In a few weeks, we will rename our DVD by mail service to “Qwikster”.

We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/YouTube An explanation and some reflections 9-19-11.flv[/flv]

Netflix CEO Reed Hastings apologizes and explains the company’s new mailed DVD service Qwikster.  (3 minutes)

Hastings promises little will change with Netflix’s DVD-rental business except the name.  But is that enough to erase the perceived price and policy changes customers are complaining about?  Some of our readers say no, and most of the 10,000+ comments on Netflix’s blog as of this afternoon were also very hostile.

“He’s re-arranging the deck chairs and calling them lounge seats, but they are really the same deck chairs,” shares reader Tom Defrancisco in Austin, who shared the story with us.  “The ship is still taking on water, and that will only get worse when the rest of Hollywood gets their piece.”

Defrancisco is referring to ongoing content contract renewals Netflix is pursuing to keep, and expand, its online video streaming.  With the potential forthcoming loss of content from Starz, which could take a significant amount of current movie titles offline, subscribers may not be willing to pay more for less content to stream.

“It’s inevitable Netflix will have to raise streaming prices in the next six months when some of their content deals are renewed, and I am asking myself if it is worth $10-12 a month to stream old documentaries, TV shows, and movies I barely care about when current movies are simply not available online,” Defrancisco adds.

[flv]http://www.phillipdampier.com/video/CNBC Netflix Quixster Equals Quitster 9-19-11.flv[/flv]

CNBC investors and analysts are calling Netflix’s announcement they are splitting up their streaming and DVD rental business a “the third strike” for the company and are telling investors to get out before it’s too late.  “Qwikster=QUITster,” says Michael Pachter, Wedbush Securities, who thinks customers are once again the big losers.  “In the last three months, customers have seen prices rise, the quality of streaming content decline, and they just made the service a lot more complicated.”  (4 minutes)

Several of our readers miss Netflix’s 1-out-DVD/streaming companion plan, which used to offer unlimited streaming and one DVD rental at a time for $9.99 a month.

“I don’t care if they call it Netflix or Qwikster or MasterWatch,” says our reader Kyle. “It’s the same thing at the same high price called something else.  Who are they trying to fool?  I think it’s very telling Mr. Hastings doesn’t even directly own shares in his own company, and has sold off tens of millions in indirect shares he controls.”

The company’s new YouTube channel is also being pelted with negative views of Netflix’s latest business moves.

VoiceOreezn:

You guys just don’t get it. You don’t care what your subscribers want, and now are trying to justify your actions. Your streaming service sucks, and the pickings are very slim. I cancelled my account. It’s not about price, it’s about greed. You started off with a good concept, (but not enough streaming movies). Now, you’re just another greedy corporation. Want people back? Give them MORE, not less. I’d be very afraid of Amazon if I were you.

Netflix stock has lost nearly 50 percent of its value since the company first announced its price increase and plan changes on July 12.  Last week, Netflix admitted it was adding fewer new subscribers than forecast since raising prices nearly 60 percent on combination streaming-DVD plans.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Cory Johnson Discusses Netflix Subscriptions 9-16-11.flv[/flv]

Bloomberg talks with Cory Johnson about the outlook for Netflix Inc., after the company cut its U.S. subscribers forecast following a price increase.  Netflix has some surprise expenses coming up.   (2 minutes)

Some analysts, including Gabelli & Co analyst Brett Harriss don’t think today’s developments will make much of a difference, telling Reuters Hastings has talked repeatedly about separating the businesses in the past.

But one thing Qwikster will bring that Netflix never had: video game rentals for Wii, Playstation 3 and XBox 360 owners.

MediaMall this week introduced PlayLater, a new software DVR for online video, allowing users to record online streamed content from Hulu, Netflix, or from almost any other website, storing unlimited content on your personal computer for later viewing.

PlayLater is being marketed as a companion to the company’s first product — PlayOn, which streams virtually any video format to television sets and portable devices like smartphones and tablet computers.

MediaMall’s products directly target pay television “cord-cutters.”  By serving up unlimited video content from web video providers — recorded or live — to television sets and portable devices, there may be more than enough to watch without paying for hundreds of cable networks you don’t care about.

PlayLater works easiest with its built-in online program guide, listing programming from the various “channels” the service supports.  Already “built-in” is listings for online content from Hulu, Netflix, Amazon’s Video On Demand, Pandora, YouTube, CNN, Fox News, TNT, and at least a dozen other networks.  Third party “plug-ins” extend the number of “channels” to other video content websites.

Viewers simply find the show or shows they want to record through the guide and press the “record” button to begin the capturing process.  Shows are quietly recorded in the background, and small pop-ups alert you when various recordings are completed.  The resulting files, recorded in a secure DRM Windows Media format, reside on your hard drive for later viewing.  You can record as much as your hard drive can accommodate, and beta testers quickly found they often amassed hundreds of recordings over a month — providing more content that most cable DVRs can handle.

When combined with MediaMall’s PlayOn, PlayLater viewers can take the show on the road, watching their stored shows over a television set in the next room or in another state, remotely streamed over your broadband connection.  You can also watch on Android or iPhone smartphones, or on tablet computers like Apple’s iPad.

MediaMall products come with a 14-day free trial, but after that you have to pay to keep watching.  The company intends to sell the packaged suite of PlayOn and PlayLater for $7.99 a month, or $69.99 per year.

Stop the Cap! has been using PlayOn at our headquarters for a few months now, and we’ve been very impressed with the results.  PlayOn effectively streams virtually any video file format we throw at it over to our Roku box.  It has largely replaced our first generation Apple TV running Boxee software, which has gotten progressively more troublesome with age.  The picture quality over our wireless N network has been excellent, and the accompanying Android app has also worked well streaming shows over Verizon Wireless’ 4G LTE network or Wi-Fi.  With Time Warner Cable’s 30/5Mbps DOCSIS 3 broadband service, PlayOn’s picture quality remains excellent even when streamed to remote televisions.

PlayLater is an interesting concept, but we’re not as impressed with MediaMall’s newest endeavor, for these reasons:

Android Phone PlayOn Media Player

MediaMall has no official partnerships with any of the content producers supported by the product.  After covering other product innovations that offer consumers increased viewing convenience, we’re certain content producers will adopt the same hostile response to PlayLater they have with other recording software that allows viewers to store a digital copy on their home computer.  That response could come in lawsuits or through technical adjustments to try and block access to PlayLater.  The company says the legality of their software DVR should not be an issue, considering consumers can already record shows on cable company DVRs and home video recording units.  The biggest “risk” for MediaMall is the fact it allows users to record and save shows from services like Hulu, even after their “online viewing window” expires (typically after a month).  You could theoretically build a season-long collection of shows with PlayLater, a concept that violates Hulu’s terms and conditions.

While the concept of a DVR for online viewing allows for convenient time-shifting, most of the shows available to record are already available “on-demand.”  It makes little sense to record a show you can launch and watch anytime you want.  MediaMall says their product will appeal most to travelers who find themselves without an Internet connection, either because they are flying, driving, or visiting relatives without Internet access.  In these cases, watching pre-recorded shows may make sense. We think the concept of automatically recording shows from live video streams (or from Slingbox, cable or satellite TV) would be more helpful.  Those of us who would like to keep cable but dispense with overpriced DVR rental fees would thank you.

The PlayLater application currently works only on Windows-based computers.  A Mac version is reportedly in development.

Remote viewing requires the PlayOn companion application, which means leaving two software programs running continuously.

Recordings are DRM-protected and technically rely on a “screen-recording” approach, albeit one that takes place in the background.  Recordings occur in real time, and the video quality suffers slightly from the transcoding between the original media format and the DRM-protected video file eventually produced and saved on your computer.  Tests showed some occasional screen glitches when busy websites suffered from traffic congestion.  We also found very slight audio sync problems from time to time, but were barely noticeable.

You can’t currently move the video files and watch them on another computer or device — they either have to be watched on the original computer, or streamed with PlayOn to another device.

The package may be too expensive for some viewers’ tastes.  Without PlayOn, PlayLater sells for $4.99 a month or $49.99 a year, but that ties your viewing options down.

Overall, PlayLater will probably be most attractive to those who find themselves uncomfortably without their Internet connection and looking for something to watch.  If you install the software on a portable laptop (left on to handle recordings), watching on the computer itself may prove to be the most convenient way to watch.  But we’re not impressed with the restrictive DRM making it impossible to simply transfer recordings between devices without streaming, and the concept of recording on-demand programming that can be watched whenever one wants anyway is not going to convince a number of people to pay $50 a year for the software.  PlayOn has proved far more useful to us than PlayLater probably ever will.  But one benefit we did appreciate with PlayLater — the ability to easily skip the increasing commercial load found on Hulu.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/PlayLater.flv[/flv]

An introduction to PlayLater.  (1 minute)

In what Netflix is characterizing as a technical fault, those who experienced a limit of one-stream-per-“Unlimited Streaming”-Account can now watch at least two streams at the same time once again.

Stop the Cap! broke the story on Netflix’s streaming crash diet on Labor Day after being contacted by several readers reporting the apparent new limitations.  Stop the Cap! confirmed them ourselves several times over the past three days, and so did Mashable‘s Ben Parr, who ran into the same error message we did after trying to stream multiple movies at the same time (although he had no trouble watching one movie and one television show concurrently.)

Netflix’s spokesman Steve Swasey called it a big misunderstanding this morning, telling us “no Netflix member is limited to less than two concurrent streams. A few Netflix members have heard differently from us, which is an error that we are correcting.”

Perhaps, but the errors continued straight through until early this afternoon, when we were finally able to confirm the launch of two concurrent streams without an error message.

Netflix has always maintained streaming limitations in their terms of service and in their Frequently Asked Questions.  The company, to this day, still proclaims “you may watch [Netflix streaming on] only one device at a time” if you are a stream-only customer.  Their terms of service emphasize this point in all-capital letters:

YOU WILL BE ALLOWED TO INSTANTLY WATCH SIMULTANEOUSLY ON ONLY ONE SUCH DEVICE AT ANY GIVEN TIME. For certain membership plans in the United States, you may instantly watch simultaneously on more than one Netflix ready device within your household. Click here to view the number of devices on which you may simultaneously view movies & TV shows that are associated with your plan. The number of devices and concurrent streams may change without notice to you. For certain limited membership plans in the United States, your available Netflix ready device may be limited to personal computers.

While those clearly are the policies of Netflix, the reality has been customers could easily stream two or more concurrent shows over their Netflix streaming account from different devices without provoking an error message.  But that changed this past weekend, when we began to receive news tips from frustrated customers.

Some consumers never realized they could watch multiple streams at the same time, and were unconcerned with Netflix potentially limiting this feature.  For them, it was tantamount to abusing their Netflix account.  It is a fact some customers have shared their accounts with friends and family members, something that streaming restrictions would go a long way to discourage.  But there are legitimate uses as well, especially in large families with different viewing habits.

We feel it’s important for Netflix to convey exactly what their policy is regarding concurrent video streaming.  If Steve Swasey wants customers to feel assured they can watch two streams concurrently, their FAQ and terms of service should be updated to reflect that.  It’s clear Netflix reserves the right to change the number of devices and concurrent streams without notice, something our readers obviously feel very strongly about.

Whether this was truly a technical fault or a trial balloon that came crashing down under negative customer reaction, the message is clear: most customers are very glad to have concurrent streaming back, and hope it remains a part of the Netflix experience.