San Francisco Frontiers - No more red envelopes: Netflix ejects DVD service

The announcement, made in a letter to shareholders before this week's earnings call, was greeted with bafflement by some broadband binge-watchers who did not know Netflix's DVD business was still running -- or that it existed in the first place.

But it also prompted nostalgic reflections among many of the tens of millions of US customers who had subscribed over the past quarter of a century, when plucky upstart Netflix first shipped out a DVD copy of "Beetlejuice" on March 10, 1998.

"We feel so privileged to have been able to share movie nights with our DVD members for so long," wrote co-CEO Ted Sarandos, in a misty-eyed missive.

"To everyone who ever added a DVD to their queue or waited by the mailbox for a red envelope to arrive: thank you," he added.

Netflix, which dominates the streaming market, began life in 1998 as a US-only DVD-by-mail rental company, taking on the then-mighty movie rental giant Blockbuster, before dipping into video-on-demand as a perk for its customers.

That shift enabled the company to expand globally.

And with fast broadband and mobile internet now blanketing not just the United States but much of the planet, DVDs had long been a declining business for the company.

DVD revenues had fallen to $146 million last year -- out of $13 billion total US revenue -- and down from $182 million the previous year.

And even the cumulative 40 million unique DVD subscribers over the years is dwarfed by Netflix's global streaming business, which now stands at a record high 232.5 million users.

Netflix had "probably been running this [DVD] service for quite some time now as a loss leader" out of "brand loyalty to their consumers," said David Craig, clinical professor at University of Southern California's Annenberg School for Communication and Journalism.

"Those red envelopes took on a larger, symbolic meaning for those consumers," Craig said, pointing to a collective sense of "cultural nostalgia" whenever we are forced to change our media consumption habits.

- 'Miss my red envelopes' -

But for a dwindling, die-hard base of surviving DVD subscribers, Tuesday's announcement invoked more than fond reminiscence.

Older subscribers who are not comfortable with streaming platforms are "likely the bigger percentage" of the remaining base, said Craig, but that is not the full story.

The business has remained particularly popular among cinephiles interested in finding obscure titles not always readily available on today's many, fragmented streaming services.

"You might ask who is still getting DVDs through Netflix, well... I am," tweeted television writer Nora Zuckerman, co-showrunner for recent hit drama "Poker Face."

"The vast selection has dwindled over the years but it has been a resource for movies (classics, foreign, or just the odd outlier) that are not streaming. I will miss my red envelopes."

Netflix kept its DVD business alive until 2023 partly out of "the need to keep that small but very vocal and very passionate base happy as long as they could," said Craig.

Additionally, in an age of near-ubiquitous internet availability, the service continued to be used by Americans who have consciously decided to live life "off the grid," spurning technology as far as possible in the modern world.

"Those conditions are really less about where they live and more about the choices and lifestyle that they've chosen," said Craig.

In today's polarized political climate, these customers "have yet one more reason to raise concerns about the state of contemporary society and feeling overlooked or neglected or deprived or denied access or ignored."

Netflix's final DVDs will be shipped out on September 29.

C.Williams--SFF