Netflix's DVD Rental Business Is Still Profitable (fortune.com)

Netflix might be focusing on its streaming business, but the product that made its name is still alive -- and apparently well. From a report: The company's DVD.com DVD rental business has 3 million subscribers and generated a whopping $56 million in profit on just $99 million in revenue during the first quarter, CNBC is reporting. That staggering profit margin aside, Netflix's business has a wide selection of 100,000 DVDs, which easily overshadows the 5,600 streaming titles available on Netflix, according to the report. DVD.com's profitability might surprise some who moved on long ago from disc-based entertainment in the living room to streaming. Indeed, Netflix itself seemed to have moved on in 2011 when it split the DVD division from its now-core streaming operation. And whenever Netflix discusses its business, the company focuses on streaming and its place in the original content market rather than DVDs.

Comments

And it will be for a long time

[SuperKendall]

As long as studios keep up outrageous fees for online streaming licenses, the physical discs will remain popular - both for rental and purchase. Over the long term they will probably decline, but I wonder if greed has any expiration...

Re:And it will be for a long time

[stinerman]

As long as studios keep up outrageous fees for online streaming licenses

And as long as rural areas have terrible internet options. No one is streaming shit at Grandpa's farm.

Re:And it will be for a long time

[jmauro]

Considering it's 10% of the total profit, on like 0.01% of the total revenue it's not exactly a worthless endeavor. Not exciting sure, but not really "chicken shit" totally ignorable.

Re:And it will be for a long time

[syn3rg]

== DVD Annual Business ==
396M Gross
224M Net
56.6% Margin

== Streaming Annual Business ==
11.3B Gross
336M Net
3.0% Margin

I don't think the disk-based business is going anywhere: not only is it a significant portion of Netflix' overall profit, but their margins are what give it staying power.

Re:And it will be for a long time

[UnknowingFool]

Which begs the question - why are physical DVD rentals so much more profitable? Wasn't streaming supposed to eliminate all the overhead of maintaining warehouses and inventory - and paying postal fees. What's gonna happen post net neutrality when Netflix's costs go up?

1) streaming licensing. The content creators (in the case of movie studios) can charge whatever they want for streaming rights as opposed to DVD rentals. Before 2011, Netflix offered lots more current movies but then their licensing agreements ran out. The studios wanted far more money and Netflix was forced to reduce their catalogs.

2) Netflix is making their own content. Because Netflix wants to stay relevant they have actually started to purchase and make their own content. This has greatly increased Netflix's costs.

I still use it

[eric2hill]

The DVD/BD catalog is vastly superior to the streaming catalog. About once a year, I get onto a chat with Netflix and we go through my queue (of around 15 to 20 movies) to see what is available in the streaming catalog, and typically there's only 1 or 2 titles available on streaming out of my queue. Until Netflix can offer up a statistically significant number (is 80% too much to ask for?) of movies in my queue via streaming, I'll stick with the DVD/BD subscription thanks.

Content is king

[pr0t0]

I still get the BluRay discs. Some view it as old-fashioned, but how do you do it otherwise? The movie content available for streaming is abysmal on both Netflix and Amazon, but with the disc plan you can get every theatrical movie as soon as it's released to disc.

Otherwise, you'd have to go to a RedBox (are those still a thing?), or gods-forbid an actual movie theater. Yeah, let me pay almost twice as much (for one movie!) to drive to a location to watch a movie on someone else's schedule, that I can't pause, that's front-loaded with tons of commercials, in room full of people that can't STFU.

Talk about old-fashioned!

Of course it is

[GoRK]

Of course it is still profitable; it has a manageable cost and royalty structure that has been established for decades; it actually has all of the content that their customers want to see; and they aren't spending billions of dollars out of the revenue stream trying to make their own films while simultaneously trying to hide the fact that all other content on the service is gradually migrating away to a fractured mess of competing services.

At this point people are putting up with the minor inconvenience of the "mail a disc" bit because it's the only service that gives the customer what they actually want. If someone is honestly surprised by this they should take a moment to quietly contemplate how it is possible that they became so stupid.

FTFY

[QuietLagoon]

Netflix's business has a declining selection of only 100,000 DVDs. The summary seems to compare the multiple-DVDs-per-title of DVDs to the one-show-per-title of streaming. For example, one show may have 45 DVS for the various seasons, but it will be only one title in streaming.

.
In my personal experience, I am seeing more and more "long waits" on the DVDs I select, and some shows missing DVDs of certain episodes. The number of shows with missing DVDs is increasing.

If the business is so friggin' profitable, why doesn't Netflix make it work?

Reasons

[Dan East]

1) Catalog. Pretty much any movie made is available. The titles available through streaming are a tiny, tiny fraction of what is available on DVD / blu-ray. This is especially true of any thing niche. Like old westerns? Martial arts flicks? Musicals? What about watching all the Alfred Hitchcock films? If there is a particular era / genre of film you are interested in pursuing you can't do it through streaming.
2) Only 81% of Americans have broadband internet. Rural areas may still be relying on wireless (cellular / satellite) broadband, for which streaming is not an option at all because bandwidth caps.
3) A great deal of the broadband in the US barely meets the definition of Broadband. I'm talking about you, DSL. Streaming quality is poor, and if anyone else starts using the internet at the same (or a device decides it's time for that 1GB OS update, etc) playback will stutter.
4) Some fraction of the population simply won't adopt to the latest in technology - that being streaming. I'm sure there are people still playing stuff on VHS. There are people that use 30 year old cars as their daily driver. There will be people using DVD for a long time to come. The number of DVDs out there exceed that of any other type of video media that has ever existed (8mm film, beta, laserdisc, vhs). As of 2011, 1 billion dvd *players* had been sold. Imagine how many DVDs have been pressed...