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Carlito Austin

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Aug 2, 2024, 1:10:08 AM8/2/24

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File - Mei Michelson prepares to watch a Netflix DVD at her home in Palo Alto, Calif., on Oct. 22, 2007. The Netflix DVD-by-service will mail out its final discs Friday from its five remaining distribution centers, ending its 25-year history. (AP Photo/Paul Sakuma, File)

Some of the remaining DVD diehards will get up to 10 discs as a going away present to loyal customers such as Konkle, 41, who has watched more than 900 titles since signing up for the service in 2006. In hopes of being picked for the 10 DVD giveaway, Konkle set up her queue to highlight for more movies starring Brando and older films that are difficult to find on streaming.

At its peak, the DVD boasted more than 20 million subscribers who could choose from more than 100,000 titles stocked in the Netflix library. But in 2011, Netflix made the pivotal decision to separate the DVD side business from a streaming business that now boasts 238 million worldwide subscribers and generated $31.5 billion in revenue year.

The DVD service, in contrast, brought in just $146 million in revenue last year, making its eventual closure inevitable against a backdrop of stiffening competition in video streaming that has forced Netflix to whittle expenses to boost its profits.

Netflix ended March with 232.5 million worldwide subscribers to its video streaming service, but it stopped disclosing how many people still pay for DVD-by-mail delivery years ago as that part of its business steadily shrank. The DVD service generated $145.7 million in revenue last year, which translated into somewhere between 1.1 million and 1.3 million subscribers, based on the average prices paid by customers.

The growth of Netflix's video streaming service has been slowing down over the past year, prompting management to put more emphasis on boosting profits. That focus may have also contributed to the decision to close an operation that was becoming a financial drain.

Shortly before Netflix broke it off from video streaming in 2011, the DVD-by-mail service boasted more than 16 million subscribers. That number has steadily dwindled and the service's eventual demise became apparent as the idea of waiting for the U.S. Postal Service to deliver entertainment became woefully outdated.

But the DVD-by-mail service still has die-hard fans who continue to subscribe because they treasure finding obscure movies that are aren't widely available on video streaming. Many subscribers still wax nostalgic about opening their mailbox and seeing the familiar red-and-white envelopes awaiting them instead of junk mail and a stack of bills.

The service's history dates back to 1997 when Netflix co-founder Marc Randolph went to a post office in Santa Cruz, California, to mail a Patsy Cline compact disc to his friend and fellow co-founder Reed Hastings. Randolph, Netflix's original CEO, wanted to test whether a disc could be delivered through the U.S. Postal Service without being damaged, hoping eventually to do the same thing with the still-new format that became the DVD.

The Patsy Cline CD arrived at Hastings' home unblemished, prompting the duo in 1998 to launch a DVD-by-mail rental website that they always knew would be supplanted by even more convenient technology.

"It was planned obsolescence, but our bet was that it would take longer for it to happen than most people thought at the time," Randolph said in an interview with The Associated Press last year across the street from the Santa Cruz post office where he mailed the Patsy Cline CD. Hastings replaced Randolph as Netflix's CEO a few years after its inception, a job he didn't relinquish until stepping down in January.

Even subscribers who remain loyal to the DVD service could see the end coming as they noticed the shrinking selection in a library that once boasted more than 100,000 titles. Some customers also have reported having to wait longer for discs to be delivered as Netflix closed dozens of DVD distribution centers with the shift to streaming.

Each week, one of the most anticipated parts of my childhood was when my family received the red Netflix envelope in the mail. I was always excited to rip it open and discover what movie my parents had picked out for our family movie night.

At the time, the convenience of receiving a DVD in the mail was revolutionary. Not only was it accessible, but the variety of movies and shows was unheard of. Members could choose from thousands of options which contrasted the more limited selection in a local video store.

Now that number is substantially smaller at $2.2 billion in 2018. Today, there are few companies that still distribute physical DVDs; the most popular one remaining in my hometown is Redbox. I anticipate that as the consumption of content continues to evolve, we will eventually phase out all physical forms of media, and only have on demand streaming platforms.

While I do appreciate the ability to easily view all my options for TV shows and movies right in front of me, the pure excitement of receiving a red envelope was unbeatable. Although I no longer use dvd.com, I understand the loss of those who were avid enjoyers of the DVD service. The act of physically picking and receiving a movie can feel much more sentimental than scrolling through the Netflix homepage. As the company continues to evolve, I hope they find alternative ways in which they can engage more personally with their customers, because nothing can outdo the classic red envelopes.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing....

Oh, Reed. You don't owe me an explanation -- or any reflections -- and you know it. You're just doing exactly what you said you were doing when you made that announcement in July that you now say was lacking in "respect and humility." Only now you're doing it in a way that reeks of condescension and disingenuousness. Not an improvement.

A couple months back, I noted here that Netflix had already announced on its tech blog that it was going to discontinue mobile app support for managing DVD/Blu-ray queues. When you announced, at the same time as your price hikes, that the DVD/Blu-ray-by-mail business would be reconstituted as a separate division, it didn't take the sharpest taco on the beach to figure out what your next step would be, and now you've announced it. Netflix wants out of that business that relies on the nearly bankrupt Postal Service. OK, we get it.

In some ways it makes sense, since analog delivery of digital information is illogical. (Does the Columbia Record & Tape Club still exist? Apparently not, but I found the Columbia House DVD Club, whose slogan is, hilariously: "Pay For the DVDs You Want, Without The Streaming You Don't." Of course, we've all seen "A Serious Man," so we know how they operate. They just got hit with a class action suit in August.)

But here's what you still don't seem to understand: You don't announce price hikes now at the same time you promise vague improvements in service at some point in the indefinite future. You don't trumpet the formation of a new company/division without showing -- right now -- how that new label improves on what you've been offering in the past. In other words, don't expect money for nothing. Or, worse, less.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we're done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

So, you don't even like the new logo. Thanks for sharing that. "It is just a new name." Oh, that's something to get enthusiastic about. And there will be video games. A whole new market for you... and nothing for existing movie customers. (This is like saying: "Hey combination Pizza Hut and Taco Bell fans -- we'll now be selling shampoo, too!")

We got this letter today from Netflix - part apology, part revelatory explanation of their recent price increase and plan-separation between DVDs-by-mail and streaming movie services. Turns out, Netflix has a lot more up its sleeve than we thought, though it all makes sense given recent moves and the rumors that have been cycling of late. Here is the letter in full: