You’ve got to hand it to Reed Hastings. Over the last 20 years, he’s grown Netflix into one of the most powerful companies in entertainment, a multi-billion dollar business that has helped shape the way we consume TV and movies in the Internet era. 130 million users across 190 countries turn to the streaming giant to watch classic hit shows, original programming, and blockbuster films on demand. You’d also be forgiven for forgetting the whole thing started as a mail-order DVD rental service — but three million people certainly haven’t.
While looking into the history of the company ahead of its 21st anniversary, Variety discovered that there are still three million US subscribers who still receive Netflix’s little red DVD envelopes (via AV Club). Or, more accurately, DVD.com’s envelopes, as the service was rebranded when Netflix separated DVD and streaming packages back in 2011.
Netflix is in no rush to try and convert those subscribers to streaming, either. The profit margins on DVD.com are substantial, with the company pulling in $53 million from those three million users last quarter. In fact, Netflix is still investing in the mail-order side of its business, launching a new DVD.com mobile app just last year. Amazingly, profit margins have actually increased from an average of $15.65 per user in the second quarter of 2016 to $17.66 just two years later.
Of course, the move to streaming is inevitable, and DVD.com is bleeding about 190,000 subscribers a quarter. If that rate continues, no one will be finding those red envelopes in their mailboxes by 2022. Still, as users jump ship, operating costs come down ($77 million in 2016 to $54 in 2017), and per-user profits go up, so the service remains viable from Netflix’s view.
If only Blockbuster could have figured out a similar business strategy.