NY Times

Remember DVDs-by-Mail? Netflix Is Still Making Hundreds of Millions in Profit Off the DVD Business — and Is Upgrading the Operation

Jul 27, 2015  •  Post A Comment

Some readers may be surprised to learn that the DVD-by-mail business continues to thrive at Netflix, even as the company’s rapidly expanding online streaming business has far surpassed the scale of the DVD operation.

The New York Times reports: “Netflix has 5.3 million DVD subscribers, a significant falloff from its peak of about 20 million in 2010; still, the division continues to churn out hundreds of millions of dollars in profit each year. And behind the scenes, engineers are trying to improve customer service and streamline the labor-intensive process of returning, sorting and shipping millions of DVDs each week.”

The DVD-by-mail business, the report notes, is helping to fund the company’s expansion and investment in programming.

“Netflix now counts more than 65 million streaming members in more than 50 countries and plans to expand across the world in the next 18 months,” The Times reports. “But that breakneck growth comes at a cost: The company expects its streaming business to just break even globally through 2016 as it pours billions of dollars into content and an aggressive expansion.”

The DVD operation, known for its characteristic red envelopes, has been heavily automated. At the company’s hub in Fremont, Calif., The Times reports: “About 3,400 discs zip through the rental return machine each hour, five times as many as when teams of Netflix employees used to process the discs by hand. Called the Amazing Arm by engineers here, the machine symbolizes the way Netflix has managed to maintain a profitable physical DVD operation even as it transforms itself into a global streaming service.”

But with the DVD subscriber count shrinking, how long will the operation remain viable? “Netflix has not put a life expectancy on its DVD division,” the story reports, adding that the service remains popular with a core base of customers, including those in rural areas where Internet service may be lacking.

Hank Breeggemann, general manager of the DVD division, says Netflix is working to ensure it keeps up its standards of customer service.

“If you cut back on service, you are going to lose your subscriber base,” Breeggemann said, adding: “Expect us to continue to ship DVDs for the foreseeable future.”

netflix red envelope

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