Eric Schonfeld at TechCrunch dug into the Netflix Q4 earnings, and noticed that Netflix only gets an 11% margin on streaming, while DVD margins are more than 50%.
Out of Netflix’s total $847 million in revenues last quarter, $476 million came from streaming and $370 million came from DVD rentals (the remainder came from international). The streaming business also twice as many subscribers: 21.7 million versus 11.2 million. But the DVD business contributed the vast majority of Netflix’s profit: $194 million versus $52 million.
If you break that down, each streaming subscriber is worth only $2.40 in profit each quarter to Netflix, compared to $17.32 for each DVD subscriber. The old business was very lucrative. The new business kind of sucks. The economics are very different. The DVD business had fixed costs, while Netflix is forced to negotiate streaming licenses on a case by case basis with each media company.
It's obvious that the streaming business is the future, but is Netflix working too hard to abandon the DVD business?