Netflix Indifference To Disc Rental Not Surprising

April 21, 2023

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Erik Gruenwedel, Media Play News

Netflix’s pending (Sept. 29) exit from the by-mail disc rental business it created 25 years ago underscores the company’s longtime indifference to packaged media as it focused on creating a business model (SVOD) that would turn the entertainment industry on its ear.

Netflix, years ago, stopped reporting by-mail subscriber numbers, opting not to include hundreds of millions of dollars of annual “immaterial” revenue in its fiscal reports. That the company devoted almost 175 words to its disc rental swansong at the end of the first quarter shareholder letter is an accomplishment in itself. It’s more attention to disc than Netflix has expressed in more than a decade.

“We feel so privileged to have been able to share movie nights with our DVD members for so long, so proud of what our employees have achieved and excited to continue pleasing entertainment fans for many more decades to come,” co-CEOs Ted Sarandos, Greg Peters and CFO Spence Neumann wrote in a letter. “Thanks to all our employees over the years that worked so hard to build the booster rocket that got streaming to a leading position.”

Indeed, as Netflix was establishing a global streaming empire, disc rentals helped pay for it. The service delivered its 1 billionth DVD rental in 2007 with little fanfare. Five years later, the business was operating under a separate banner — DVD.com — and office building.

That transpired quietly after co-founder/CEO Reed Hastings — in a blog post from his hot tub in Santa Cruz in September 2011 — infamously announced plans to split and rename the disc business (“Qwikster”) from streaming, in addition to implementing a price hike.

While the price hike stuck, the Qwikster idea was canned after three weeks, with Hastings issuing repeated apologies as the service lost 800,000 subscribers and the company’s stock price plummeted.

“I think they should have been paying much more attention to [disc] because that was their customer base,” Stuart Skorman, a Bay Area entrepreneur who worked with Netflix, told The New York Times at the time. “That’s what made them special.”

But that was a business lifetime ago. Despite generating $32 million in disc rental revenue in the first 90 days of 2023, Netflix is finally pulling the trigger — after reportedly delivering 5.2 billion discs. That the company wouldn’t respond to overtures from Redbox owner Chicken Soup for the Soul Entertainment to buy the business suggests either sentimentality or arrogance.

“Hard to understand why they would be so disinterested in selling,” said Wedbush Securities media analyst Michael Pachter.

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