Yesterday, Netflix CEO Reed Hastings and CFO David Wells sent a letter to shareholders defending the company’s pricing strategy and assuring them that it is a good long-term strategy.

The letter reads: ?"Two months ago we took a big strategic step by separating streaming and DVD-by-mail into two distinct services, and we now have more visibility into our expected Q3 2011 results. Our financial guidance for the quarter is unchanged, as is our international subscriber guidance.  We are, however, lowering our domestic subscriber estimates.
   
"Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice. The strategy behind the split of our services is four-fold: 

  1. to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
  2. to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
  3. to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
  4. to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.

"We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come."

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