Europe's online source of news, data & analysis for professionals involved in packaged media and new delivery technologies

Netflix's low-key mailer announcement of 4 billionth disc milestone

Without fanfare, the DVD/Internet movie-rental company Netflix announced it shipped its 4 billionth disc on early January. The milestone was only signaled on the disc mailers: "We ship emotions - 4 Billion DVDs and counting. Thanks for helping us reach this milestone. Your love of TV shows and movies made it possible."

Netflix shipped its billionth disc in 2007, passed the two-billionth mark in 2009 and the three-billionth in 2011. While the first billion figure warranted a widely distributed press release, news of the recent achievement is only reaching those 8.2 million Netflix subscribers to the disc rental scheme.

The company has being trying to de-emphasise its packaged media operation, focusing instead on its streaming service. Back in September 2011, CEO Reed Hastings announced plans to split its DVD-by-mail service into a separate business named Qwikster, in a move to focus on its online video-streaming service which would retain the name Netflix.

The inconvenience of such a move, combined with a 60% price hike, led to a rebellion and exodus of some DVD-loving 800,000 subscribers that drove down Nexflix shares. In a U-turn, Hasting announced that there will be no change: "one website, one account, one password, in other words, no Qwikster."

"A common sense move considering discs have represented the bulk of Netflix?s operating income since Day 1 - including more than 50% of operating income during the service's most-recent fiscal period,? writes Home Media Magazine.

There are still plenty of good reasons for Netflix to keep its original DVD service going. "If anything, Netflix should be more active in promoting the service," observes The Motley Fool's Rick Munarriz, giving four reasons:

"For starters, nearly 7 million of Netflix's 8.2 million DVD accounts also subscribe to the streaming service. Put another way, a quarter of Netflix's growing domestic streaming business relies on Netflix for DVDs. Even if streaming is the future, Netflix doesn't want to upset those 7 million double-dippers who are Netflix's largest customers.

"Streaming will also always be limited in selection. Even as Netflix spends 10 figures a year on digital content, there is a lot of content it will never get. Redbox just entered the digital market, and it makes fresh content available through its kiosks. Four nightly DVD credits are included in its monthly rate. Netflix's fiercest rival in streaming smorgasbords is and Amazon offers new releases as digital rentals a la carte. Netflix has stubbornly refused to go that route, so it needs to keep discs as a way for video buffs to get the hottest current content.

"DVDs are also a more profitable business for Netflix, and not just because the company is losing money overseas. The contribution profit from its 8.2 million DVD accounts was greater than the profit generated by its 27.2 million domestic streaming accounts this past quarter. That trend will shift this quarter, but as a scalable model, Netflix should be promoting its DVD business to keep its highest-margin business steady.

"Finally, we can't forget the ton of data that Netflix has amassed through DVD rental patterns. Netflix gets smarter with every billion DVDs it sends out, and not just in the way it can serve up more efficient recommendations. Keeping DVDs alive helps Netflix gauge the content that its streaming customers would want to access digitally. That helps Netflix prioritize licensing negotiations."

Story filed 12.03.13

Bookmark and Share

Article Comments

comments powered by Disqus