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?
You want to rent games? Gamefly is the way to go. I wouldn't go to a movie service for games.
Posted by: Gary | January 30, 2012 at 11:56 PM
I am one who does not do Streaming, relying on my Netflix subscription for Blu-rays. Until Streaming offers the high quality video AND audio that Blu-ray offers, I will not be interested.
It's been said in the comments, and I agree, Netflix may not be totally abandoning DVD/Blu-ray rentals, but they are definitely not promoting it. As an example, try to sign up as a new customer. You will see options to sign up for Streaming and NOT DVD/Blu-ray rental.
I understand that philosophy. As has been said, if they have paid for the Streaming content, and adding customers doesn't add to the cost of Streaming, well of course, make more money! Adding DVD/Blu-ray customers does add costs (postage, cost of DVD, etc.) However, as has also been shown, it is really profitable!
Now, Netflix last year lowered their price for me, by $4 a month. That's because I was able to do just Blu-ray only, eliminating the Streaming. I have a friend who also saved money because he was able to eliminate the DVD portion of his subscription to go with Streaming only.
Since they lowered their price, I guess it's okay to lower their service? As more and more titles, older ones in particular, are released on Blu-ray, Netflix is getting less and less of them. 28 Day Release Window? For older Blu-rays, it's often several months.
The complete Wall Street Journal article mentioned above with Reed Hastings quote about DVDs is here: http://online.wsj.com/article/SB10001424052970203806504577183303393083214.html
Posted by: Walt D in LV | January 31, 2012 at 01:01 AM
Anon-e-mouse, the thing wannabe hipsters like you are missing is that this is not a technological issue. I'd love to just stream everything, but about 10% of my queue is streamable. Many things I want to watch are not streamable anywhere at all. So how do I solve that? Tell me how to stream that which is not available to stream? Oh, hey, look, they're readily available on DVD. Fancy that.
Seriously, when you take the "derp, people just afraid of the future, derp!" line on this particular issue, you sound like a total dumbass who is utterly ignorant of the licensing issues, cost and unfortunate industry trend toward a fractured streaming landscape where every content provider will want to charge their own subscription. Wake up to reality, mousey.
Posted by: Mouse Stomper | January 31, 2012 at 02:29 AM
Ah, Mouse Stomper, you are my hero of the day.
Posted by: Perkins Cobb | January 31, 2012 at 08:29 AM
Besides being under the same company name, disc by mail & streaming have virtually nothing in common. People here seem to pit them against each other for some apparent reason. The industry is devoting money/attention toward streaming, it's not just Netflix. TWC, Cablevision, Amazon and a whole host of others are getting into the "TV Everywhere" concept, not discs by mail for a reason. It's what the masses want. Videophiles and classic film buffs will hate this, and I understand. But you're in the minority.
Posted by: Nate | January 31, 2012 at 08:51 AM
Yeah there is still several Titles that are on disc and not streaming. Gonna be that way for a long time.
Streaming is convenient just not reliable to get all the Titles you want. DVD was and is that. Or was....
I remember getting several rare Movies I had heard about mainly rare small cult films on DVD. Which are still not on streaming.
So discs shouldn't go anywhere if the streaming won't grow fast enough and it can't. Not for many, many years.
It also seems like maybe Qwikster should have happened? As now they are like: "You don't want Qwikster? Fine then the disc rental service can rot." Pretty much.
We all bitched how Qwikster would be so awful because of separate Queues even though Netflix could easily add a notification of Titles on both so we could see if we had Titles in the others Queue already.
Last I checked Blockbuster's disc service still carried many more Blu-Ray Titles than
Netflix. Both seem to have some Titles the other doesn't though.
Currently Netflix & Blockbuster are the last major cataloged disc rental services with a wide selection to choose from unlike Redboxs limited selection.
Streaming just isn't there yet. It's awesome for TV shows though.
It still doesn't have the big selection of Titles that disc rentals tend to have. Or quality of Blu-Rays.
It's simple why that is as it's easier to go and order a bunch of copies on disc than it is to secure the streaming rights. It's gonna be like that for quite awhile too.
It seems the two still need to complement each other. Were still not there where one is really better than the other.
When Netflix charged for just discs by mail and streaming being an added bonus it was killer.
Even raising the prices was annoying but at least they kept getting discs in.
Now that they are favoring streaming they are mucking up there business as they are doing it too soon!
However as a consumer you have the option to mix and match services or move on to others if the current one isn't no longer up to snuff with your likings.
Those plastic discs are still valuable for getting all you can watch content in your Home and should still be complimented with streaming as they both work hand in hand.
Posted by: Crow550 | January 31, 2012 at 08:52 AM
@Crow550... Well said!
Posted by: Walt D in LV | January 31, 2012 at 09:13 AM
Mouse Stomper, I'm not addressing the fallacies of streaming in this article. I'm eluding to the fact that DVD and Blu-ray have an expiration date here in the future and that it is increasingly more important to focus on where content will come from after they are gone.
It's true that Netflix does not have the same ability to obtain content digitally as they do on physical media (first sale doctrine etc.) Studios and Content owners are asking millions for stuff only a handful of people want.
The biggest issue Netflix faces right now is determining whose taste in movies is worth their purchasing dollar.
Do they spend xxx million dollars to get all the star wars movies on streaming to make the nerds happy?
Do they spend xxx million dollars to get every single of dexter ever made to make all the stay at home mom's happy?
It's a constant battle that they are fighting, bringing value to a disgustingly over-inflated industry.
There is no one solution to this issue right now obviously, but the biggest point to be made is that DVD and Blu-ray will not last forever and as a business, Netflix will have to deal with that reality, just as it's customers will.
@Crow tl;dr
Posted by: Anon-e-mouse | January 31, 2012 at 04:33 PM
I don't get the few digs I see on Netflix streaming. It is rock solid, always there, and always high quality for me. I stream on a BoxeeBox, XBox360, WindowsPC, MacOS, and iPhone. All are high quality and rock solid performance. Perhaps my Tier4 ISP is better than yours?
As for content availability, I have yet to run out of things to watch on Netflix Streaming. I am not someone who needs to watch what everyone else is watching. Their is a subset of us who will primarly consume content from the pool Netflix offers. If content owners want us to watch their content, sign an agreement with Netflix.
Posted by: ScottZ | January 31, 2012 at 05:54 PM
I love streaming, and would rely on it entirely if it weren't for the fact that not everything is available in streaming all the time. Want to watch Annie Hall? You have to rent the DVD because it's NEVER on streaming. Want to watch Teen Wolf? You have to rent the DVD this month, but maybe, if you wait a year, it might be on streaming again.
I would dump DVDs entirely if I could, but every once in a while I have to take a month of DVD service just to catch up on movies that aren't going to streaming.
Fix THAT situation, and then you can drop DVDs. Until then, it's business suicide.
Posted by: Jack | January 31, 2012 at 08:41 PM
@ ScottZ: My problem with the image quality is that there seem to be a lot of flawed encodes. Lots of films with frame-rate problems or macroblocking, and even if you complain, nothing ever gets fixed. Nobody at Netflix seems to be doing any QC'ing, and their baseline standards are low -- if all Starz or Epix is offering is a thirty year-old videotape master in the wrong aspect ratio, then Netflix will take it. Of course, there are atrocious DVD transfers too, but as a whole the standards are higher. One reason I've been lobbying tiresomely on forums like this is to encourage streamers to notice and complain. I'm not against streaming in theory, but in practice I want Netflix to get better at it.
The most high-profile movies and TV series, if they're in HD, and if I'm not watching them on a Saturday night, usually provide a positive streaming experience. It's when I get into Netflix's deep catalog (which is what interests me mosts) that I start rejecting movie after movie for image quality problems. Sadly, that includes a lot of the streaming exclusives (the rare '50s Paramount and Republic films, and the '60s-'70s MGM-owned titles) that would otherwise be a gold mine.
Posted by: Perkins Cobb | January 31, 2012 at 11:34 PM
getting rid of starz was really stupid
Posted by: the troll | February 01, 2012 at 07:55 AM
the troll,
It appears Starz doesn't want hundreds of millions of dollars from Netflix. Not much Netflix can do other than refuse to overpay for Starz.
Posted by: ScottZ | February 01, 2012 at 09:36 AM
I think most of us get rid of DVDs in a heartbeat is the streaming selection wasn't so limited. I think there is very little if any sentimental attachment to DVDs, especially now that all the new DVDs we get are "Rental" DVDs forcing us to watch commercials and lacking any bonus features. But I will go through the pain of waiting for a DVD to come in the mail, pick it up, unwrap it, put it in the DVD player, wrap it back up, mail it back out and wait another few days if that means I can watch a movie/TV show that is not on streaming.
Posted by: Ritch | February 01, 2012 at 04:03 PM
@the troll
Starz was really stupid to leave Netflix.
They wanted a Starz only package on Netflix & Netflix said we don't roll that way.
So Starz will only hurt themselves.
Posted by: Crow550 | February 01, 2012 at 06:55 PM
I think this has a lot to do with the US Postal Service's recent announcement to do away with overnight delivery. DVD customers will be waiting a week between mailing their current rental in and receiving their next movie. People will complain and hate Netflix for it, but it's not their fault. The USPS is going to eliminate any services that require a quick turn around without their overnight delivery.
Posted by: Stranger | February 02, 2012 at 03:44 PM
Streaming is the future... Do you really think Netflix wants to keep the old business model long enough to end up the next Blockbuster? Yeah, they were a bit early, but it's the right direction. Only if they could be more patient.
Posted by: Playstation 4 Reviews | February 02, 2012 at 08:07 PM
Well I have a list of Blu-Rays I wanna catch up on so I have to decide which to use. Either Netflix or Blockbuster the only two services with a decent back catalog of Blu-Rays.
I just need to compare both and see which has more Blu-Ray Titles I am looking to add.
I hope I can get at least one to two Titles per week with the USPS delays.
Blockbuster mail delivery is just as fast as Netflix in my area. Last I checked.
Yeah I enjoy streaming but it doesn't have it all.
I don't want to pay $2-$5 per rental either.
Disc rentals are still very valuable.
Hell maybe I should get both and support em. I sure as hell don't want them to leave anytime soon.
Currently the best bang for the buck for all you can watch is Blockbuster & Netflixs disc rental service. As all the video stores are no more in my area. For streaming Netflixs & Amazons streaming service. For recent TV shows Hulu Plus.
Then RedBox for cheap and near instant New Releases for most Titles. Only have 1 Blockbuster Express and it's out of the way. Amazon also has cheap rental deals and Vudus $2 for 2 nights.
That's all I can think of?
Sony also offers the excellent free ad supported Crackle & another one is Popcorn flicks.
Out of all I listed. Only two offers the biggest selection and they both are through the mail.
Don't get me wrong I enjoy streaming for most Movies and TV shows.
I don't see these disc by mail services leaving anytime soon though.
Well have to see how Redbox and Blockbusters non-Dish streaming does too.
I don't see discs leaving though. It's cheaper to purchase the discs than securing streaming rights for only a limited amount of time too.
Posted by: Crow550 | February 04, 2012 at 02:53 AM
screw dvds ,waste all this money for nothing. why cant the ass fags just put everything on instant ! YOU HAVE TO WAIT TO GET IT IN THE MAIL ,WASTE OF TIME WHEN U CAN GO BUY IT OFF AMAZON OR JUST GO TO FAMILY VIDEO OR BLOCK BUSTER.
Posted by: GEOFFERY LEONARD THE PEDOPHILE | February 04, 2012 at 07:26 PM
DVDs have one thing that streaming will probably never have - first sale protection. Disks will remain the only affordable way to rent new releases for a long long time.
Streaming may be bad for the consumer in the long run. If studios can get most customers to purchase movies digitally they can discontinue disks altogether, and then we will truly be at the studio's mercy.
Posted by: gir | February 05, 2012 at 06:34 PM
Netflix is not selling the DVD side of the business. They will continue to provide DVD service as long as there is a demand for it. It is inevitable that streaming is the future, and that is what they are preparing their business model to reflect. All other rumors are speculation by people who do not know. I, for one, should know...I work for Netflix.
Posted by: Legend | February 08, 2012 at 12:17 PM
The spring is coming and the winter is not far behind! ^^
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