Does a Recent Change Show Netflix Slowly Backing Away From DVDs?

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On Monday, Netflix notified its customers via its blog of a slight change. It would no longer provide the functionality for users to add movies to their DVD-by-mail queue through a streaming device like a Blu-ray player of Wii console. This has angered some customers, as is evident from the blog's comments section. Is this just a practical fix by Netflix or part of its grand scheme to slowly shift its business to be entirely streaming?

Let's go to that blog post to see what Netflix uses as its rationale for the change:

We're doing this so we can concentrate on offering you the titles that are available to watch instantly. Further, providing the option to add a DVD to your Queue from a streaming device complicates the instant watching experience and ties up resources that are better used to improve the overall streaming functionality.

The first reason actually makes sense. If you're on a streaming device, all seeing movies you can't watch really provides is frustration. When searching for content on a steaming device, some users may prefer to only see titles they can actually watch on that device. DVD-only content just makes finding a good streaming option more difficult.

But the second reason seems like something of a stretch. Are we really to believe that so many Netflix users are adding DVDs on their streaming device that the action is having a significant impact on Netflix's resources? I have been streaming movies through my Blu-ray player for about 18 months, and I have never once added a DVD through the device. It's just so much easier to search and add DVD titles on a computer. If Netflix's resources are really that strained due to DVD adding through its streaming service, then perhaps a better solution would be to beef up those resources, rather than reduce its customers' functionality.

So the first explanation might be legitimate, but it alone is probably not sufficient reason for Netflix to remove uesrs' ability to add a DVD to their queue from a streaming device. After all, if this was only about making the experience better for its customers, then Netflix could just provide a checkbox for "search streaming titles only." That way, the company would still provide customers using streaming devices the ability to add DVDs to their queue.

Instead, this move is likely a part of Netflix's gradual evolution to emphasize its streaming capabilities and minimize its DVD-by-mail presence. We already know that Netflix has been taking steps to push streaming, and it isn't hard to figure out why. Its costs are far lower when a customer streams a title than when the company has to buy and mail out physical discs.

Netflix is discovering something that lots of companies have already learned: some customers are resistant to change. You can't make all your customers happy all of the time when your strategy begins to shift. But this latest move is benign at worst. There aren't likely that many people out there who only added DVDs to their by-mail queue through their streaming devices. And those who do manage their queues on computers will be practically unaffected. They'll just have to take an extra step if they want to add a movie to their DVD-by-mail queue if using a streaming device.

Netflix expects its shift from DVD-by-mail to streaming to continue over the next several years, but it's hard to imagine a time in the near future when it's by-mail business can be completely eliminated. It's unlikely that all of its customers will have streaming devices within the next few years, so it will lose subscribers if it ends its by-mail service too soon. Instead, it might simply begin to raise prices for customers who want to continue to receive DVDs by mail. That way, anyone who really wants this service can still get it, as long as they're willing to pay more. And that additional revenue should keep this aspect of its business profitable.


Some additional posts related to Netflix's streaming ambitions:

Netflix's Streaming Progress Continues

Netflix Rolls Out Streaming-Only Option, Price Hikes

Why the iPad's Netflix Streaming Matters

3 Big Challenges Facing Netflix

Now You Can Stream Netflix Movies to Your iPhone

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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