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Monday, October 10, 2011, 08:42 am PT (11:42 am ET)

Netflix cancels plans to spin off disc mailing business as Qwikster

Responding to customer backlash, Netflix on Monday announced that it will no longer spin off its DVD-by-mail business as a new operation dubbed Qwikster.

In a post at the company's official blog, Netflix CEO Reed Hastings said that it was "clear" that customers didn't want to have their streaming and disc-based queues listed on separate websites. As a result, the company will retain one website, one account and one password for its customers.

"In other words, no Qwikster," Hastings wrote. The company's price hikes that went into effect in July will, however, remain.

The decision to ax Qwikster before it even launched is the second major change of heart from the company in recent weeks. Netflix announced last month that it would spin off its DVD and Blu-ray mailing service as Qwikster, a change initially made in response to subscriber backlash over higher prices for rentals of physical discs.

At the time, Hastings said it was apparent that streaming and DVD by mail were becoming two very different businesses with different cost structures. He said the companies needed to be marketed differently and would operate independently.

The change would have positioned Netflix as a more direct competitor to Apple and iTunes, which offers digital-only service for movie rentals and purchasing of TV shows. While Netflix is exclusively a rental service, movie rentals are offered on iTunes, but Apple is largely focused on purchases.

Apple attempted to take a larger share of the rental business when it relaunched its Apple TV set top box in late 2010 with new 99-cent TV show rentals. But the company abandoned that strategy in August, noting that customers "overwhelmingly" preferred buying TV shows over renting them.

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Netflix is the dominant player in digital video delivery in America, with a study from the NPD Group pin March showing its Instant Watch service represents 61 percent of all paid digital video viewings. Apple, by comparison, took just 4 percent of domestic streaming and downloadable video content.

While Netflix dominates the online rental market, Apple is the undisputed leader in terms of digital content sales — a market where Netflix does not compete. A study released in February showed that the iTunes Movie Store represented 64.5 percent of digital video sales.