When Netflix announced on September 18th that they will separate their DVD division and turn it into a subsidiary called Qwikster, the stock value decreased and the company lost 1 million subscribers. What could have been the plan behind this, at the moment, rather disadvantageous decision?

DVD's and Netflix - the end of a longterm relationship

During the last class discussion, somebody pointed out that Netflix might be looking for an exit strategy for the DVD/BluRay rental division. The increasing trend of streaming movies  over the internet and the accompanying decline of disc rental is welcomed by a company like Netflix, where the omission of almost all expenses for logistics and physical media would be considered a great economic achievement.

By dropping the physical rental department and becoming a streaming-only company, Netflix is ready to enter or even establish the foundation for a much bigger market of streaming movies over the Internet. Part of the reason for this reorientation could be the oncoming launch of Netflix in Europe.

Is Netflix's shakeout related to a European venture?

For all we know, the costly separation of Netflix and their DVD division might just be part of bigger plan that involves both seizing the opportunity of the yet sparsely populated European streaming market and fortifying existing strengths in North America.

Sources:

1) http://blog.netflix.com/2011/09/explanation-and-some-reflections.html

2) http://www.forbes.com/sites/greatspeculations/2011/09/20/netflix-is-still-worth-195-despite-all-the-drama/

3) http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/08/netflix-spain-britain.html