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25 years later, Netflix finally won

Netflix was never going to be a DVD shipper forever. But to win the streaming wars, it might need to recapture what made DVDs by mail so special.

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Netflix’s DVD business was once so big it was 1.3 percent of all US mail.
Photo by Michael Tercha/Chicago Tribune/Tribune News Service via Getty Images

The DVDs were never the point. Even in 1998, when the company mailed its first DVD — the 1988 cult classic Beetlejuice, in case you’re wondering — it was already imagining a world without discs. The company was called Netflix, after all, not DVDsByMail. It started a streaming service practically as soon as internet bandwidth would allow and bet everything on the internet being much more powerful than physical media. It was extremely right.

Now, Netflix is officially getting out of the DVD business. The company announced along with its quarterly earnings that it is planning to shutter, which is the new name for its DVD by mail business. (You might remember when Netflix tried to spin out this business under the name Qwikster, which remains one of the worst product names of all time and lasted all of about a week. But the less we talk about Qwikster, the better.) It will ship its last discs on September 29th, and I have a sneaking suspicion you won’t need to return them.

This is an obviously good business decision, at least for a company like Netflix. The DVD business was once worth many billions of dollars annually but has cratered over the last decade: Blu-ray and DVD sales and rentals were about a $6.5 billion global business in 2021, according to the Motion Picture Association of America, which sounds like a lot of money but is less than half what it was even five years ago. In the US, the digital entertainment market is estimated to be about 10 times bigger than the physical media market. 

“Our goal has always been to provide the best service for our members but as the business continues to shrink that’s going to become increasingly difficult,” Netflix co-CEO Ted Sarandos wrote in a blog post announcing the shutdown. Sure, if you’re Redbox, there’s money to be made in renting DVDs. But there’s a lot more money in streaming. Even Redbox is a streaming service now.

But the end of still marks the end of an era. It’s easy to forget now, but when Netflix first launched, the fact that you could log in, slide a movie to the top of your queue, and that movie would appear on your doorstep a couple of days later felt like magic. DVDs were not hard to find at the time! But Netflix got rid of late fees, didn’t make you put on shoes to return things, and never seemed to be out of your favorite flick. It belongs in the history books with Gmail’s seemingly infinite storage, Amazon’s two-day shipping, and the first time you pressed a button in the Uber app and a car appeared. It was a moment when technology made an everyday thing suddenly and forever better.

Back then, there were two kinds of people. There were people who maintained their queue beautifully, mailed everything promptly after they were done watching, and had a constantly rotating library of great new movies in the house. And there were the people like me, who never remembered to send back a disc and thus turned Netflix into basically a $10 a month subscription to one Mission: Impossible DVD. 

Either kind of person was a good business for Netflix. At one point, it was shipping 900 million DVDs a year and accounted for 1.3 percent of all the mail in the United States. Netflix went public in 2002, still as a DVD mailer, and became a huge success.

And ultra-fast DVDs changed the movie industry entirely. They killed Blockbuster and your neighborhood movie store, but they also helped turn watching movies and shows into an impulse rather than an event. Before Netflix, you had to go somewhere, browse around, check out, and drive home just to watch Titanic. With Netflix, those thin sleeves just appeared at your door, and you watched what was next. All your interactions with Netflix were online, not in a store. You can draw a straight line from that experience to the Netflix homepage we all know now.

Netflix was, and in many ways still is, a delivery company more than anything else. Take away all the shiny shows and billboard ads, and what does Netflix do? It finds the most expedient ways to put content on your screen. So as DVD rentals took off for Netflix, a lot of people thought it was going to do even more in the space. Netflix might start selling discs rather than renting them, some thought; others figured that when Netflix got into streaming, renting and buying content would be its model. Instead, of course, Netflix went all in on subscription streaming and changed the course of the industry yet again. 

Netflix didn’t single-handedly kill the old way of doing business in Hollywood, but it sure led the charge. It dropped entire seasons at once, instead of one episode at a time. It released huge A-list movies without caring about theaters. It (controversially) changed the way creators make money by offering big up-front deals rather than gradual residuals. As it grew, and as tech and media companies copied its moves, the old way of making and watching entertainment went away.

Netflix didn’t single-handedly kill the old way of doing business in Hollywood, but it sure led the charge

For a last twist of the knife, Netflix is now becoming a player in the ad business. After many years of not wanting to offer a cheaper ad-supported version of the service, Netflix started rolling out exactly that earlier this year. It’s still a new product, but Netflix is already making more money per subscriber on the ad-supported tier than it does from the full all in subscription. In response, Netflix is making the ad plan better, upgrading the quality, and giving you two concurrent streams instead of one. It’s coming for the last thing traditional TV has going for it — it’s cheap — and improving the delivery system again.

Everything Hollywood can do, Netflix can apparently still do better. But that may not be true for long. The streaming world moves fast, and “movies and shows available instantly over the internet” is starting to sound as quaint as “you can put the DVD in your queue and it shows up at your house two days later!” New players like Apple and YouTube are pouring huge amounts of money into everything from award-winning shows to exclusive sports rights. It’s not at all clear that Netflix has the same kind of user experience advantage it has enjoyed for the last quarter century.

Netflix co-founder Reed Hastings always used to say he was more worried about “sideways threats” than his entertainment counterparts. Netflix’s greatest competitor was either Fortnite or sleep, depending on the day. Now, it seems like everybody’s a Netflix competitor, and many of them grow more powerful every day.

So Netflix is trying new things. It’s adding games to the platform, with some neat first attempts but no big hits so far. It’s pushing into more live content, which was most recently a total disaster.  

But mostly, Netflix is trying to make more money. It has entered the phase so many giants do in which there’s not much growth left, and all you can do is try to squeeze more money from your existing customers. That’s why Netflix is putting most of its efforts into cracking down on password sharing and why it seemingly can’t stop increasing the price of the service.

A GIF of all the Netflix envelopes over the years.
For a while, there was nothing like seeing one of these envelopes at your door.
Image: Netflix

What Netflix really needs is to return to its roots. Not literally, of course. DVDs by mail is an old and dead idea, and we’re mostly all fine with that. But the best thing Netflix could do next is once again make content easier to find and consume. In this all-streaming-everything era, a thing as simple as finding content to watch is impossible; the platforms are walled gardens, none more closed than Netflix itself. Streaming boxes aren’t able or even allowed to help users find stuff to watch, and we’re long overdue for a fundamental rethink in the basic UI of a streaming app.

This is roughly similar to the moment Netflix noticed how bad the DVD rental market was 25 years ago. We’re back in the “aimlessly wandering the aisles and paying too much money for everything” phase of the entertainment universe. Last time, Netflix solved it by making everything easier. Fewer things to pay for; fewer shelves to browse; just all the content you wanted, right there at your door. If Netflix can’t figure out how to fix it again, it will be because the streaming world Netflix built won’t allow it. But if it can, Netflix could feel like magic again. And I wouldn’t even have to remember to mail the disc back.