Are days numbered for DVD service?
Netflix’s streaming business has taken the spotlight.
SAN FRANCISCO — Originally cast in a starring role, Netflix’s original DVD-by-mail service has been reduced to a bit player — one that may eventually get killed off as the company focuses on its booming video streaming service.
Netflix’s fourth-quarter earnings report released Wednesday provided the latest glimpse at the DVD service’s descent into oblivion as the streaming service hogs the spotlight.
The DVD service shed 159,000 subscribers during the final three months of last year to end December with 4.1 million customers. That’s an 11-year low for a format that gave Netflix its initial shot at stardom, allowing it out-innovate and outmaneuver Blockbuster Video, then the king of home-video rentals.
Now, though, the DVD service operates mostly as an afterthought that caters to a shrinking audience of die-hards who prefer to watch movies and TV shows on discs instead of streaming or downloading them onto mobile gadgets.
Meanwhile, Netflix’s streaming service has been reshaping the world of entertainment, attracting converts to the convenience of streaming video at any time on any device with a high-speed internet connection.
The streaming service now boasts nearly 94 million subscribers in 190 countries, after adding another 1.9 million in the U.S. and 5.1 million in its overseas markets during the final three months of last year. RBC Capital Markets analyst Mark Mahaney predicts Netflix will have 160 million streaming subscribers by 2020. The company is coming off its biggest quarter of customer growth yet.
DVD subscribers may be fleeing, but the service has a library of more than 90,000 titles, including recent films that usually aren’t available to stream for nine to 18 months after they leave theaters — or sometimes at all, at least on Netflix.
The streaming service had about 4,600 titles as of late last year, down from roughly 6,500 in July 2015, according to the research firm Ampere Analysis. Netflix has trimmed its selection of outside streaming titles as it has ramped up its own production of television series and films, which can only be viewed on its streaming service.
Though the DVD service has lost nearly 10 million subscribers over the past 5½ years, Netflix keeps it around because it remains tremendously profitable.
The company makes an operating profit of roughly 50 percent on DVD subscriptions, after covering the expense of buying discs and postage to and from its distribution centers. The DVD service doesn’t even have a marketing budget; by comparison, Netflix spent almost $1 billion last year promoting its streaming service.
The DVD profits have helped subsidize Netflix’s streaming expansion outside the U.S., a push that has accumulated losses of nearly $1.5 billion during the past five years. The DVD service has made $1.9 billion during the same period.