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Netflix's DVD Rental Business Is Still Profitable (fortune.com) 125

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.
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Netflix's DVD Rental Business Is Still Profitable

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  • by SuperKendall ( 25149 ) on Monday May 21, 2018 @12:10PM (#56647452)

    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: (Score:2, Informative)

      by iggymanz ( 596061 )

      nonsense, compare that to Netflix's 11.7 BILLION dollars in revenue with 560 million in profit.

      The DVD business is chicken shit in comparison, it's why they're not bothering with it.

      • Hey, do YOU have 560 million of dollars coming in? Per year?

        That is a huge profit in absolute terms. I'm not saying streaming will not continue to grow, especially as Netflix and others work around studios by producing their own content.

        What I am saying is that movies will keep making money too, but that a large part of what they could have earned will remain locked in disc sales and rentals because they are too restrictive in cost and breadth of licensing material.

        • no the market is slowly dying. to lose a million subscribers in one quarter and have 3 million left is huge, as in hugely downward

          https://www.statista.com/stati... [statista.com]

          • by Rob Y. ( 110975 )

            So, where are the customers for movies available on DVD only going? If the market for DVD sales and rentals dries up, maybe the studios will have to lower their streaming royalty demands - or just lose the home market altogether.

            • Hopefully they're getting put into stream archive

              A lot of them are on Amazon, if you mean 1930s - 1950s.

      • by AvitarX ( 172628 )

        Sounds like it's about 1/4-1/2 of their total profit.

        56 (quarterly profit DVDs)*4=224
        224+560 (2017 profit)=784

        If the 224 is exclusive of the 560, then it is just under 1/3 of the total.

        if it is part of the 560 it is just about 1/2 of the total.

        I don't think either is chickenshit for a company (if a company's profit went down 25% year on year, investors would be worried, but they'd start panicking if it went down 50%).

      • by jmauro ( 32523 ) on Monday May 21, 2018 @12:37PM (#56647640)

        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.

      • You're probably commenting based on a vague memory of when they announced that they would fully split the company and the DVD business would become Qwikster. Their customers made it clear that they didn't want to have to set up and maintain two subscriptions, so they backed off.

        Netflix separated the DVD rental business from the streaming business in a legal sense, but they still run both and report the profits of both in their quarterly earnings announcements. DVD rentals still make up about 10% of their

      • by syn3rg ( 530741 ) on Monday May 21, 2018 @01:57PM (#56648160) Homepage
        == 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.
      • By your numbers from their DVD business Netflix makes $56M profit on $99M revenue for a return of over 50%. Compared to their streaming business which makes $560M on $11.7B which is almost a 5% return. Sure their streaming makes 10x the amount of DVD but it also is far less profitable in terms of percentage.
        • by Rob Y. ( 110975 )

          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?

          I imagine at the moment all the streaming profits are going into production of home-grown content. And that's not a bad thing - unless it's temporary until all the competition dies off. We seem to be looking at another bait and switch mono

          • by UnknowingFool ( 672806 ) on Monday May 21, 2018 @02:50PM (#56648588)

            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.

          • by pnutjam ( 523990 )

            DVD's may hang around as the only place to get that odd program without having to take out yet another subscription.

            Only place without a VPN...
            I watched the Handmaid's tail too. Strangely enough, the first season is on Spotify video now.

        • by AvitarX ( 172628 )

          One of those numbers is for a quarter, the other for a year.

          Assuming the 56M profit is a representative quarter, its 3x, not 10x, for the streaming.

          That also assumes the 560 number doesn't include the disc based profit.

          • That would only make their DVD more important as well as more profitable than streaming.
            • by AvitarX ( 172628 )

              I agree.

              That's my point. The DVD business is a HUGE portion, maybe even 50% of their profit.

              I'm kind of surprised they aren't pushing it, though it's likely cheaper to run it as it shrinks than if they grew it or maintained it (as DVDs break, if customers reduce they don't need to replace them).

              The streaming business is purchasing a lot of content too, I'm curious how long they depreciate the cost for, because it's quite possible that the streaming side is actually cash-flow negative and operating money com

      • You're not very good at math are you? Perhaps you should review ratios.

        DVD: $56 million in profit on $99 million in revenue is a 56% margin.
        Streaming: $560 million in profit on $11.7 billion in revenue is a 4.7% margin.

        Netflix's DVD business has an order of magnitude greater margin than its streaming business.

        Only a fool walks away from that kind of business.

    • 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: (Score:3, Funny)

        by drinkypoo ( 153816 )

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

        Pigs and chickens both have streaming shit.

    • 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...

      Greed not only has no expiration, it increases as fast as possible...
      In other news, the wages of sin remain fixed...

    • Content is king (Score:4, Informative)

      by pr0t0 ( 216378 ) on Monday May 21, 2018 @12:32PM (#56647600)

      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!

      • by jetkust ( 596906 )
        I have Netflix, Hulu, Amazon Prime and Google Play. And I still use Redbox all the time.
      • by EzInKy ( 115248 )

        Movie theaters are the worse. They won't pause the movie when you have to go pee or get a phone call, volume is set to their liking, and they charge per person viewing the show.

      • by pots ( 5047349 )

        Otherwise, you'd have to go to a RedBox (are those still a thing?), or gods-forbid an actual movie theater.

        There are still video rental places out there. No really, it's true. You just just need to look for them. A lot of rural towns will have one or two, because internet connections are spotty in places, and big cities will still have some, because big cities have a niche for everything.

        I guess if you live in the suburbs you might be screwed.

    • I'm all equipped for fast convenient downloads, but as long as the Netflix streaming selection stays so skimpy, I remain a DVD subscriber.

  • I still use it (Score:4, Insightful)

    by eric2hill ( 33085 ) <eric@ija c k . net> on Monday May 21, 2018 @12:16PM (#56647486) Homepage

    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.

    • by llamalad ( 12917 )

      Do you have a problem with their sending your queue items out of order?

      I did.

      They'd basically never send me the titles at the top of my queue, and they'd send discs of seasons out of order. It became pretty unusable.

      • by GoRK ( 10018 )

        If you keep a small queue you always get what you want. Is it right that you should have to do this? No, but it's not all that hard either.

      • I'm pretty sure this was a feature not a bug. I can see why this wouldn't work with seasons of TV shows but for movies it makes sense to send any disk in the queue once they become available.

        You could rip the disk, send the disk back and not watch them until you can watch them in order. Then you're kind of storing the shows like a DVR until you can watch them in order. Some would argue that it's piracy if your goal was to pirate the show there are easier ways to do that. Plus, I usually never want to watch

      • by suutar ( 1860506 )

        Can be worked around manually but yeah, that's a pita.

      • I've only had this when the top-of-the-queue disc was popular enough to be out when they were sending me a new disc. At which point I got #2.

        For example, The Last Jedi was at the top of my queue, and 3 other discs got sent before it because of demand for it.

      • Of course - they only have a disc or two of each in stock. And what they have is damaged/cracked/scratched

        • +1 ^ This

          I still have 7 movies in my queue for years now that say "unknown" for availability. And some of them are quite mainstream and even in a series. One example is "The Matrix Revolutions" Bluray. They have all the OTHER Matrixes, but not that one. Have been waiting at least a year on that one now. Another is "Gladiator" Bluray- at least a year on that one too.

          • And if they bought it before their deal (where they get "rental" versions), they may have the special features disc, just not the main movie.

      • by atrex ( 4811433 )
        At one point Netflix DVD could recognize discs that were part of a series and there was an option to have them not sent out of order. While it seems they still recognize a series of discs, the option to not send them out of order seems to have disappeared. Not sure if it's just automatically done these days or if it's no longer an option at all.

        Fun fact though, (not for series) if you have a large queue and you front load the titles that are marked as having a wait time at the top of it they'll end up oc
      • I've never had this happen with TV episodes.
        With movies on the other hand I actually use this as a feature. Anything in my queue marked as "Short/Long delay" I will deliberately move to the top of my queue. That way I don't wait to work through my queue to where a delayed item is and then wait again for that disk to become available; the queue works around the block of delayed items and as soon as any show up I'll get one. Sometimes if there is a big block of delayed items at the top of my queue for a long

      • Do you have a problem with their sending your queue items out of order?

        Only when the disk at the top was listed as having a wait. Then the disk they sent me usually didn't count against my limit. So instead of my normal 3, I'd have four disk sitting around until they sent me the one that I was waiting for. I do stagger my series so I never have more than one disk of a series at a time, so once it shows up, I have two and am back to normal rotation.

      • by pnutjam ( 523990 )
        I'm equipped for non-sequential delivery. Just rip it to my home server and send it back.
    • They will need to rely more and more on original content as traditional providers stop renewing their licensing agreements, a.k.a. Disney.
          Interesting that much of the original content on Netflix only has 1 or 2 seasons and they move on. I wonder if it's to keep any one set of actors being able to negotiate higher salaries as the become more and more popular.

      • I wonder if it's to keep any one set of actors being able to negotiate higher salaries as the become more and more popular.

        I'd bet it's more likely they sign a multi-year contract out of the gate with no room for negotiation - only renewal if not cancelled. Token "raises" maybe. Who knows, I'm sure there's an NDA attached.

    • 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.

      Agreed, I have both streaming and DVD but I'd sooner drop streaming than I would DVD as I find interesting stuff to watch in streaming, but what I really want is usually only available on DVD. This will be more true once I finally get through all of the Star Trek series, just something I feel I should do once in my life.

    • by yy1 ( 238590 )

      I too still use the DVD/BD service, Lately I have found that its older non-american titles that I can't find on Netflix or other streaming services (I have hulu thru my phone company w/"Limited" commercials, haha unwatchable)

      Specifically older UK and Australian titles that weren't even released in movie theaters in the US.

      Its also great for great classic old series that haven't made it onto a streaming service (All in the Family for instance).

      That's the thing with the DVD service, if it was available for sa

  • Great selection, no commercials? The only real drawback is the lag time, but between the library and Netflix DVDs just about all my video needs are met.
  • Honestly, streaming still has a lot of catching up to do.

    Every Bluray I buy comes with a free digital copy. Now my hearing isn't what it used to be, so the audio that comes over a digital stream is fine, but to this day the quality of the video is noticeably better. I just bought the Black Panther Bluray and the disc is heads and shoulders above the Google Play stream. For Star Wars or Marvel movies, it's a an easy choice to pick up a disc.

    • by ffkom ( 3519199 )
      For the same reason I also still rent (2k and UHD) BluRays. The "streams" are full of awkward compression artefacts, their muddy quality is a laugh in comparison to the pristine pictures from physical media.

      As long as streaming services optimize their profits by using abysmal bandwidths, I don't see how anyone with a sense of quality could want to watch "streams".
  • I watched "It" on Prime and the encoding was amazeballs, have fun with your hipster DVDs.

  • Movies have been made, now, for oever a century. How many does NEtflix have in its catalog... and what percentage of it is streamable?

    A few years ago I looked for a number of titles, nope, nope, nope, DVD only. But then, I might want to see something other than Star Wars that was made more than 10 years ago.

    • by OzPeter ( 195038 )

      Movies have been made, now, for oever a century. How many does NEtflix have in its catalog... and what percentage of it is streamable?

      You do realize that it mentions those numbers in TFS don't you?

      I'd say welcome to /. n00b, but with a 4 digit UID maybe you've simply forgotten that you've been here before :P

    • I think it's fair to say that in most cases if a show's not in their catalog then either the content owners won't permit it or there's not enough people who want to watch the show for them to stock it.

      I had an aunt who owned a video rental store and every so often she would pull movies from the shelves that didn't rent. Her criteria was simple, did it rent in the last year? If not then she would put then in the attic. I'm sure Netflix has a much more complex and accurate algorithm and they probably just sel

    • 100,000 DVD titles and 5,600 stream-able movies so less than 6% available. My personal experience is that once in a while you get a new release on streaming but the majority of the catalog is older and not necessarily classic. For example Airplane! is now available but wasn't for a long time. There are lots of b-movies and lower quality titles on their movie list. TV shows have a much better selection.
  • Of course it is (Score:5, Insightful)

    by GoRK ( 10018 ) on Monday May 21, 2018 @12:34PM (#56647612) Homepage Journal

    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.

  • Going offtopic but consider DVD format is more than 20 years old and still going strong (yes, many have gone to other means but there sure is a lot of DVDs still out there). Like the VHS it will take decades to die. Found on the internet someplace, forgot source, here is the text below.

    What do the letters DVD stand for?
    All of the following have been proposed as the words behind the letters DVD:

    - Delayed, Very Delayed (referring to the many late releases of DVD formats)
    - Diversified, Very Diversified

  • FTFY (Score:5, Insightful)

    by QuietLagoon ( 813062 ) on Monday May 21, 2018 @01:08PM (#56647854)
    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?

    • I have more "very long wait" than even "long wait." Quite a few movies missing entirely now (out of a queue of around 200 discs). And the only way to see the movie is to pay full retail for a DVD - studios have made these movies available nowhere else. If you only want to watch the same thing that everyone else is watching, streaming is fine. If you want a choice, you quickly notice how limited you are.

      • In my experience, the "very long wait" is pretty much the equivalent of "unavailable." The past few months, "long wait" is beginning also to look like "unavailable" as well.

        .
        I really don't see how Netflix can boast about their DVD inventory of late. From what I see, the inventory is dropping, becoming quite narrow in its focus. I've already dropped from "two at home" to "one at home" because Netflix cannot keep two at my house anymore. Plus, Netflix closed the 1-day-away warehouse, so transit is now t

        • Same. When Netflix bumped up their pricing last, I dropped down to one also. If I had the capital, I'd just start competing with Netflix DVD myself. I could just go to Dollar General and buy all their old inventory for 50 cents a disc - they've been dumping it anywhere and everywhere.

  • I have held off on buying an Ultra Blu-Ray player because it seems to be nearly impossible to rent them. I have no interest in buying movies in 4K that I will likely only play once or twice.
    • by ffkom ( 3519199 )
      Some online rental services do rent out UHD BluRays, but indeed it seems there are some arbitrary restrictions on which ones can be professionally rented and which ones cannot.

      So find yourself 10 other UHD enthusiasts, agree on a list of titles you want to see, and exchange them after watching - for about the same price as renting, everyone can keep one after all have seen them.
      • Some online rental services do rent out UHD BluRays, but indeed it seems there are some arbitrary restrictions on which ones can be professionally rented and which ones cannot.

        There aren't. There are only contractual ones, because it is absolutely legal to buy a retail disc and rent it out — unless you have signed a contract with a distributor to get them on some other terms. And then you have to get something in exchange for not being able to rent those out; typically, the deal is that you get the movies you are able to rent out for less than retail price.

  • Streaming: You watch what they make available, but it's ready nearly instantly.

    Mail: You watch what you want to watch (almost any movie title and many TV shows you can think of) but you have to wait a couple days for it to come in the mail.

    To me, the DVD by mail option is much more valuable.
  • I used to be a Netflix DVD subscriber, but then they raised their prices so I dropped them and switched to Redbox (which turned out to be a good thing - I only rent about 2 movies a month which works out to $3 if I don't have a coupon). I had no idea Netflix still rented DVDs. Every time I hear someone mention Netflix they are clearly talking about the streaming service.

  • US internet sucks and with caps this may get bigger.

    Say comcrap really forces you to buy tv or you are stuck with our new 500GB cap with $10 50GB overages.

    • I'm moving to someplace I'll be on satellite, which has limitations that may make me want to get stuff on disc. But I'll also be using a PO Box, and I'll have to go to the post orifice to get my discs, and I live literally at the other end of town from it. Town is tiny, but it's still an annoyance :)

  • Reasons (Score:5, Interesting)

    by Dan East ( 318230 ) on Monday May 21, 2018 @01:39PM (#56648048) Journal

    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...

  • Netflix might be focusing on its streaming business, but the produce that made its name is still alive

    I can't be the only person who had no idea that Netflix sold fresh fruits and vegetables.

  • 8k to become more mainstream. Then that shit should pick up again.

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