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Netflix has announced that it is shutting down its DVD-rental-by-mail business.

Variety reports that since 1998, Netflix "has mailed out over 5 billion DVD and Blu-ray rentals to subscribers across the US … Netflix’s revenue from the DVD-by-mail biz has — by design — steadily declined over the years, as the company wanted to push members toward the streaming service. In 2022, the DVD business generated $145.7 million, down 20% from the year prior, which represented 0.5% of its total revenue."

The announcement came, Variety notes, as Netflix "added 1.75 million net new subscribers in Q1, compared with gaining a whopping 7.66 million for the final quarter of 2022, the period during which its low-cost, ad-supported tier launched (Q1 marked the first full quarter with the ad-filled option). This brings the streamer’s total global subscriber count to 232.50 million."

“After an incredible 25 year run, we’ve decided to wind down later this year,” co-CEO Ted Sarandos wrote in a blog post on the company’s site. “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. So we want to go out on a high, and will be shipping our final discs on September 29, 2023.”

KC's View:

Meaning, I think, that somewhere, people will be finding red envelopes and DVDs under their couches on September 29, 2025.

It is almost impossible to understate the degree of disruption that those red envelopes brought to the video rental business.  A quarter-century ago, Blockbuster owned the business, drawing in families to their stores all over the country and making a veritable fortune on late fees.  The management at Blockbuster never really saw Netflix coming, and when presented with the opportunity to buy Netflix, turned it down.

The red envelopes also symbolized a great leadership lesson when, about 15 years ago, Netflix tried to separate the mail business from its growing streaming business.  Leadership at Netflix backed off that decision in about a month - they listened to their customers, and understood that they'd overstepped.

The world is different now, though, and the DVD business is minimal (relative to the company's broader operations).  The red envelopes may go away, but they are a valuable symbol of what is possible, and the degree to which insurgent companies can challenge and eventually supplant entrenched companies.

We often argue here that there is no such thing as an unassailable business model.  The red envelopes prove it.

Interestingly, analyst Martin Peers, in The Information, writes that "Netflix is looking more and more like an old-fashioned television company. In other words, it’s growing slowly but producing lots of cash. The video-streaming giant reported what can only be described as anemic growth in the first quarter."

It seems to me that this suggests that Netflix has to be on the lookout for the next company with the next red envelope.  While it disrupted Blockbuster right out of business, it also has proved to be a disruptor to the traditional film and television businesses.  But if Peers is right  and "Netflix is looking more and more like an old-fashioned television company," it needs to be vigilant about avoiding the complacency that typified those institutions.