Netflix CEO: DVD subscriptions will decline, forever

After a very rough 2011, Netflix came through today with stronger than expected earnings and a boost in subscribers.

The company will continue to see losses in 2012, mainly thanks to the extreme costs of rolling out streaming services internationally.

During the report, Netflix revealed for the first time the kind of margins the company makes on its two products, DVD subscriptions and streaming subscriptions. Streaming comes in at just 11 percent profit margin, while the DVD rental business has a hefty 52 percent margin.

Unfortunately for Netflix, CEO Reed Hastings confirms that the DVD rental business is a dying one: "We expect DVD Subscribers to decline every quarter.. forever." In the Q4 2011, the company lost 2.76 million DVD subscribers whilst gaining 220,000 streaming customers. One the other hand, however, Hastings says "profitability of each new streaming subscriber is almost twice what it is for DVDs -we'd obviously like them to do both, but if they're only going to use one, we'd much prefer they use streaming."

Netflix recently expanded to the UK and Ireland and will compete with LoveFilm in the region.

Written by: Andre Yoskowitz @ 25 Jan 2012 22:41

core2kid

Did they ever think that the reason behind their observations may have to do with the fact they're charging double for DVD rentals and $3 less than what they were for streaming?

Morons.

Edit:
Redbox at the time was $1/day.
$1/day
Can return anywhere
Can get one instantly
95 movies/year at Netflix's price of $95.88/year.

Netflix went to $7.99/month DVDs.
$7.99 * 12 = $95.88/year.
Maximum DVDs you can get is every ~3 days (1 day return shipping, 1 day watch, 1 day shipping to you).
360/3 = 120 movies/year considering you watch a movie per day.
Take holidays into account and drop that to about 110 movies/year.
Bottom line, 110 movies/year for $95.88.

Of course there are other perks on Netflix such as being able to get older movies and TV shows but for the most part, they are instant streaming or you can rent them from your local Blockbuster for a couple bucks a night if you really want. Look at the numbers, what's the better deal? (Seriously if you're watching a movie a night, you need to get a life)

25.1.2012 23:53 #1

wiimatrix

Netflix in the UK, the choice of films to stream is very poor.

26.1.2012 04:10 #2

Qliphah

Until netflix starts streaming all their DVD's i won't be happy. Perhaps instead of only getting a return of 200k out of 12 million they would have gotten them all to switch to streaming.

26.1.2012 09:46 #3

Jeffrey_P

Originally posted by Qliphah: Until netflix starts streaming all their DVD's i won't be happy. Perhaps instead of only getting a return of 200k out of 12 million they would have gotten them all to switch to streaming. Of course DVD rentals will decline until they go the way of VHS. How are Blu-ray rentals doing?

DVD's were good for their time frame. As technology improves it's out with the old and in with the new.

You can have streaming. I'd still rather purchase or rent a hard copy. There is no reason for me personally jump on the streaming bandwagon. Tried it but streaming is a far cry from an optical disk.

Jeff

Cars, Guitars & Radiation.

26.1.2012 10:36 #4

SProdigy

Eh, whenever someone says streaming is crap, I consider the source. I know most people on this site are techies that have the best gadgets and highest broadband reach. I'm in the same boat, with a Roku that does 1080p and a fat connection to the net. Streaming off Netflix looks pretty darn good. Is it Blu-Ray quality? Eh, but it is close enough and I don't have to worry about discs or mail. It's much like TV: one and done. I don't need to own everything. Streaming provides the on-demand tech that people want.

26.1.2012 18:10 #5

Jeffrey_P

Originally posted by SProdigy: Eh, whenever someone says streaming is crap, I consider the source. I know most people on this site are techies that have the best gadgets and highest broadband reach. I'm in the same boat, with a Roku that does 1080p and a fat connection to the net. Streaming off Netflix looks pretty darn good. Is it Blu-Ray quality? Eh, but it is close enough and I don't have to worry about discs or mail. It's much like TV: one and done. I don't need to own everything. Streaming provides the on-demand tech that people want. Like I said, streaming does not suit my needs.
If you have a decent home theater you should be able to notice the difference. No comparison.

I'm not going to stream on a device with a tiny screen either.

I also consider the source....

Jeff

26.1.2012 19:57 #6

nopcbs

Originally posted by core2kid: Did they ever think that the reason behind their observations may have to do with the fact they're charging double for DVD rentals and $3 less than what they were for streaming?

Morons.

Edit:
Redbox at the time was $1/day.
$1/day
Can return anywhere
Can get one instantly
95 movies/year at Netflix's price of $95.88/year.

Netflix went to $7.99/month DVDs.
$7.99 * 12 = $95.88/year.
Maximum DVDs you can get is every ~3 days (1 day return shipping, 1 day watch, 1 day shipping to you).
360/3 = 120 movies/year considering you watch a movie per day.
Take holidays into account and drop that to about 110 movies/year.
Bottom line, 110 movies/year for $95.88.

Of course there are other perks on Netflix such as being able to get older movies and TV shows but for the most part, they are instant streaming or you can rent them from your local Blockbuster for a couple bucks a night if you really want. Look at the numbers, what's the better deal? (Seriously if you're watching a movie a night, you need to get a life) RedBox vs. Netflix for DVD's is a reasonable comparison. You need to keep in mind, however, that convenience is worth something. With Netflix you get the movie at home and can just give it to the postman to send it back. With RedBox, you get to burn gas to get to a machine. The selection thing is a big issue unless you only watch recent releases. RedBox has very little that is not at least "newish". Keep a RedBox movie two nights and your cost doubles, too. RedBox BluRays are 60% more expensive than DVD's and NetFlix surchage is only 38%. The library size issue is even greater here. It is simply not true that "for the most part" older movies that you can rent as DVD's are available as streaming content. With the Starz catalog about to go away for streaming, it will get even worse. I use RedBox and I go off/on with Netflix DVD rentals. It is not so much the cost issue with the rentals (it is STILL a GREAT deal), it is that there are simply not that many recent releases that are worth watching. I let the "bank" build up for a few months and then enable DVD's for a month. Painless.

nopcbs

27.1.2012 09:52 #7

SProdigy

Originally posted by nopcbs: I let the "bank" build up for a few months and then enable DVD's for a month. Painless. Couldn't have said it better myself. I do find the value in the streaming, however, when catching up on or starting a new TV series. The hassle of waiting for a physical disc (or the insanely overpriced option of buying the physical media) isn't worth it. Much easier to stream and have the very next episode on demand.

27.1.2012 10:58 #8

ThePastor

Lets not forget the very real issue of the USPS cutting back.
No more Saturday delivery and an extra day to move most pieces of mail.
This will impact Netflix DVD movies greatly!

"But the bigger point here is that UMG has effectively admitted this takedown was never about copyright. They demanded YouTube censor Megaupload and justify that by saying they have a contract which allows it so its fine. Its painfully clear what they would do with a law like SOPA that gives them much more power"

27.1.2012 13:42 #9

Mez

Originally posted by nopcbs:
RedBox vs. Netflix for DVD's is a reasonable comparison. Convenience is not an issue for me there are several boxes a few minutes from my house. I would gladly trade $.25 in gas for the immediate gratification.

Quote:The selection thing is a big issue unless you only watch recent releases. That is a big deal for me because there have been so few new releases I would care to see.

I will probably start up Netflix after a 5 yr vacation when I secure a job.

27.1.2012 16:27 #10

GernBlan

DVD rentals will never go away as long as the streaming services continue to only offer 2-year-old releases. The thing that's going to put Netflix out of business is the cable and satellite companies who stream movies via PPV on the same day that they're released to DVD/BR when not only does Netflix not offer the movie via streaming, but you have to wait 30-60 days to watch on their DVDs, too. Netflix really needs to negotiate better early access deals with the movie industry. If they can't do that for financial reasons, then put a fork in Netflix -- they're done.

27.1.2012 17:39 #11

nopcbs

Originally posted by GernBlan: DVD rentals will never go away as long as the streaming services continue to only offer 2-year-old releases. The thing that's going to put Netflix out of business is the cable and satellite companies who stream movies via PPV on the same day that they're released to DVD/BR when not only does Netflix not offer the movie via streaming, but you have to wait 30-60 days to watch on their DVDs, too. Netflix really needs to negotiate better early access deals with the movie industry. If they can't do that for financial reasons, then put a fork in Netflix -- they're done. I think you are very wrong. I am not about to pay anybody $3-5 to stream me any movie. That's per movie. No way Jose. Not going to happen. I work too hard for my money to waste it like that. I'll happily wait.

nopcbs

27.1.2012 18:27 #12

ThePastor

Actually, the PPV stuff may have a chance of beating Netflix.
Why? Because it's easy.

I wouldn't want to live on a steady diet of PPV, but when watching a movie means an occasional movie on a Friday Night with the Wife and kids, it's a very easy way to go. It doesn't matter that it's $3 or $5. It's IMPULSE sale and it works.

27.1.2012 20:15 #13

Jeffrey_P

Originally posted by nopcbs: Originally posted by core2kid: Did they ever think that the reason behind their observations may have to do with the fact they're charging double for DVD rentals and $3 less than what they were for streaming?

Morons.

Edit:
Redbox at the time was $1/day.
$1/day
Can return anywhere
Can get one instantly
95 movies/year at Netflix's price of $95.88/year.

Netflix went to $7.99/month DVDs.
$7.99 * 12 = $95.88/year.
Maximum DVDs you can get is every ~3 days (1 day return shipping, 1 day watch, 1 day shipping to you).
360/3 = 120 movies/year considering you watch a movie per day.
Take holidays into account and drop that to about 110 movies/year.
Bottom line, 110 movies/year for $95.88.

Of course there are other perks on Netflix such as being able to get older movies and TV shows but for the most part, they are instant streaming or you can rent them from your local Blockbuster for a couple bucks a night if you really want. Look at the numbers, what's the better deal? (Seriously if you're watching a movie a night, you need to get a life) RedBox vs. Netflix for DVD's is a reasonable comparison. You need to keep in mind, however, that convenience is worth something. With Netflix you get the movie at home and can just give it to the postman to send it back. With RedBox, you get to burn gas to get to a machine. The selection thing is a big issue unless you only watch recent releases. RedBox has very little that is not at least "newish". Keep a RedBox movie two nights and your cost doubles, too. RedBox BluRays are 60% more expensive than DVD's and NetFlix surchage is only 38%. The library size issue is even greater here. It is simply not true that "for the most part" older movies that you can rent as DVD's are available as streaming content. With the Starz catalog about to go away for streaming, it will get even worse. I use RedBox and I go off/on with Netflix DVD rentals. It is not so much the cost issue with the rentals (it is STILL a GREAT deal), it is that there are simply not that many recent releases that are worth watching. I let the "bank" build up for a few months and then enable DVD's for a month. Painless. Redbox one day rental $1.63 including tax for Blu-ray disks. There's several Kiosks in my area within walking distance. $4.89 a month for rentals seems to make sense to me.

The Netflix sub I had for years was a waste of money. The disks would sometimes sit around nullifying their at the time reasonable monthly subscription fee. Redbox makes me get off my ass to return the rental. Since I only rent a few Blu-rays a month Redbox is the rental path I use.

I have a decent home theater system that makes streaming look and sound like garbage.

Jeff

Cars, Guitars & Radiation.

27.1.2012 21:41 #14

wetwilly

Originally posted by wiimatrix: Netflix in the UK, the choice of films to stream is very poor. u r so correct

29.1.2012 10:58 #15

Mez

Originally posted by ThePastor: Actually, the PPV stuff may have a chance of beating Netflix.
Why? Because it's easy.

I wouldn't want to live on a steady diet of PPV, but when watching a movie means an occasional movie on a Friday Night with the Wife and kids, it's a very easy way to go. It doesn't matter that it's $3 or $5. It's IMPULSE sale and it works. I am a bit tighter on the pocket book than you and from what I read the AD members on the whole are quite frugal.

29.1.2012 15:05 #16

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