Netflix Red Envelope DVDs Come To An End

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September 29, 2023 will go into the history as an official date that Netflix original DVD rental model has come to an end. On Friday Netflix mailed out the last of the DVDs with a note "no need to send it back". For most of Netflix customers the end of DVD rentals came long time ago, and many were not even aware that the company was still in DVD rental business. Netflix separated streaming service from DVD rental by mail service a while ago. However, this hybrid business model is what served Netflix well and made is a super successful company. DVDs are thing of past. With Netflix officially ending DVD rentals, I wonder if this is the beginning of the end for the company.

The true power of Netflix is in its streaming technology and services. That is what made it become so popular. That is what made Blockbuster go out of business. That is what made studio and companies in the movies industry to reevaluate their business models and adapt. However, Netflix would have never been as successful as they have become without DVDs. In the early days of Netflix, while their streaming was great and better alternative, their catalog was limited and they didn't have enough content to grow their user-base exponentially. Although renting DVDs by mail was Netflix's original business model, that too was missing something. Netflix had two brilliant ideas: one DVD rentals via mail, second streaming content online. Each of them individually wouldn't have brought the success they have seen. But the combination of two into a single business model turned out to be the an unstoppable and disruptive business model.

As a startup Netflix had fascinating story as it tried to discover its path. It started out with selling DVDs online and then even adding games. However, they discovered that renting DVDs was a better business model and more profitable. They figured out that by removing all the bulky casing for DVD and mailing them as a regular letter the would be able to cut shipping costs significantly, and they would be able to continue renting the same DVDs over and over without a costs of having physical stores like Blockbuster had. There difficult time in companies history that it was possible they would make it, there were times when they partnered with Amazon and would send customers who wanted to purchase the DVD to Amazon's site and Amazon was supposed to do the same for their customers who wanted to rent. That partnership didn't last long, as Amazon wasn't honoring the deal. There was also a time when Blockbuster could have bought Netflix. We hear similar stories with other major companies of today as well. I doubt buying Netflix would save Blockbuster.

Online DVD rentals no doubt played a great role in Netflix becoming a big player in movies and tv content distribution space. The business model served them well. No wonder they held on to it for so long, even after DVDs became obsolete. Yes the true power of Netflix was unleashed with its streaming business. As a pioneer in the space they transformed the entire industry and dominated it for a very long time. In my opinion, the DVD rental part of the business what made its streaming work. Streaming movies was new, and with all new things content catalog would be limited. Paying a subscription fee for a limited content may not have worked, unless subscriptions were super low. Netflix subscriptions were indeed low, but probably not low enough to retain customers only with online streaming content. Having DVD rentals for more content what made subscriptions model work well. For one subscription customers would get two awesome services.

Today online streaming space is very competitive and still early to tell how the future of online streaming will look like. Netflix no longer has the technological and early mover advantage in the space. Everybody wants to have the piece of the market share. This space is crowded. It is not only studios and media companies, but also tech companies who wants to be involved in creating tv and movies and streaming them on their platforms. Apple is active in the space, all major studios have their platforms or partnerships in place. It is not just Hulu and Netflix anymore. NBCUniversal's Peacock streaming platforms continues to grow. Disney Plus has been doing well. Paramount not only doing well but also partnered with Showtime. HBO Max, Hulu, AMC Plus, and many more are fighting to gain customer loyalties for their platforms. Because of this competition Netflix doesn't have a luxury of getting streaming rights for a lot of the old and new content. Why would other companies give their competitor advantage. Netflix would have to pay a lot more for the streaming rights today than it had in the past. Of course Netflix knew that and made some great moves like funding a lot of Netflix originals, and going international and not just relying on Hollywood.

Despite Netflix great business decision making and pivots in the industry, I tend to think they have reached their peak as a company and from this point on they will be on decline. It has been a great journey for the company, and they will always be the pioneers and innovators in this space. But I doubt they will be able to survive the competition alone. They may have to consider mergers, partnerships, etc. They already did partner with Microsoft when they launched a plan with ads. But usually companies that partner with Microsoft don't make it. Maybe some do.

The challenges Netflix is facing and will face are not unique for Netflix. Other players in the space will also be facing the same challenges. Amazon always had ambitions to be in video streaming space. Amazon tries to be in all kinds of businesses. But movie and tv content sales, rental and streaming is definitely Amazon's among high priority businesses. Although, it seems they have neglected their services in last few years. Amazon video was among the pioneers as well. Then they changed their strategy with moving Amazon video to Prime. For a moment it seemed like a great idea. Because Amazon Prime is not only about offering subscription based content, but rather incentive for their customers to shop more in Amazon's market place. Everything else Prime offers is just a bonus. I think this kind of thinking turned Amazons Studio a secondary service and low priority. Amazon Prime's app is not that good. It has UI and UX issues, the content catalog is very limited. However, they do try to bring original content from time to time. It seems at this moment Amazon Prime is not the biggest competitor in the space. But when some executive in the company wakes up and starts taking it a little more seriously, things may look very different. Because Amazon has funds and resources to make things happen. Apple had a decent start as well. But lately they have been dropping the ball too. They increased their subscription fees and ever since then have not really made any progress with original content or partnerships. This too has to do with poor decisions, I think. But it may change once the focus shifts back to this service again.

Netflix is not going anywhere. They will still be a big player in streaming in the near future. However, they will no longer be the only player. End of the DVD rentals may mark the end of how they began, but at the same time symbolically it may also mark the beginning of the end of Netflix. Let me know your thoughts in the comments.