Despite Indifference, Netflix Reigns Supreme in By-Mail Disc Rental

Netflix has all the luck.

The erstwhile by-mail disc rental pioneer’s brand name ushered in the ability for consumers to rent DVD or Blu-ray Disc movies online and receive the disc by mail 24 hours later.

Disc rental has been an unrelenting cash cow for Netflix, generating operating income and crazy margins most companies would call out in an earnings report.

Not Netflix.

The unit reported a $44 million profit on revenue of $71.8 million in the most-recent fiscal period. That revenue represented 98.9% of all by-mail disc rental revenue in Q3 in the United States, according to DEG: The Digital Entertainment Group.

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Instead, Netflix has largely turned a cold shoulder to packaged media for about as long as it has been streaming video — 10 years. In fact, co-founder/CEO Reed Hastings in 2011 infamously tried to spin-off the disc business into the short-lived Qwikster brand — a move that sent Netflix shares freefalling 75%.

Hastings was forced to retract the decision — initially announced in a Sunday blog post from his home — as a corporate misstep.

“It is clear that for many of our members two Web sites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs,” Hastings wrote at the time.

To be sure, the number of Netflix subscribers renting movies and TV shows by mail is dwindling. Subscribers are down nearly 18% to 2.3 million from 2.8 million last year. Revenue through nine months of the fiscal year is off about 15% from the previous-year period at $136.6 million.

One day, by-mail disc rentals from Netflix will be history, quietly removed from “consolidated statements of cash flows” on the balance sheet without so much as a thought. That day might be marked by some in the media as transformational, the end of an era, or just ignored.

Indeed, when Netflix shipped out its 5 billionth disc rental in August, it tweeted the milestone — from a separate corporate account.