With the rising popularity of set-top boxes and an ever-growing array of streaming services, you might think that Netflix’s original business of shipping out DVDs in its iconic red envelopes is obsolete and outmoded. But as Emily Steel reports for The New York Times, Netflix’s DVD operation is alive and well. Approximately 3,400 discs are processed through the company’s rental return machine each hour — five times as many as when Netflix employees used to process them by hand. Steel reports that the machine, dubbed the “Amazing Arm” by the company’s engineers, symbolizes the way that Netflix has managed to maintain a profitable DVD operation, even as it builds a global streaming empire.
Netflix now has more than 65 million streaming members in more than 50 countries, and has concrete plans to expand around the world within the next 18 months. But the company projects that its streaming business will only break even globally through 2016 as it spends billions of dollars on content and on expansion. The often ignored DVD-by-mail operation still has 5.3 million subscribers — considerably fewer than the 20 million it had at its peak in 2010 — but continues to generate hundreds of millions of dollars in annual profit, augmented by engineers’ work to improve customer service and streamline the process of sorting and shipping millions of DVDs each week.
But why do users continue to subscribe to Netflix’s DVD service, when there are practically endless options of services to stream movies and TV shows instantly? It turns out, there are still some pretty compelling reasons for users to keep the company’s DVD-by-mail operation in business.
1. Access to a bigger library
One major reason to subscribe to Netflix’s DVD service is to gain access to the entire breadth of its selection of titles. The New York Times reports that Netflix has Netflix about 93,000 titles available for next-day delivery service to 92% of its subscribers. Additionally, the most recently released films tend to be available only on DVD, and not on Netflix’s streaming service, because of rights issues.
The licensing for physical rentals of DVDs or Blu-rays is significant simpler, and new movies are typically released within a month of them going on sale. By contrast, Netflix consistently removes titles from its streaming library as its licensing deals change and expire, even as it tries to make up for holes in its collection by producing original content. Many longtime Netflix users are familiar with the problem; they’ll watch a favorite movie once — or more than once — on the streaming service, and when they return to watch it again, it’s been removed. The ebb and flow of titles available for streaming happens all the time, and you can more consistently find the titles you’re looking for as a subscriber to the DVD service.
At the peak of the DVD service, Netflix operated about 50 distribution centers across the country; that number has since declined to 33. But the service is getting more and more efficient. The company’s introduction of automation technologies has enabled it to process more DVDs, and expand the areas where it offers the service. The company has also reworked its schedule to synchronize with new delivery standards set by the United States Postal Service.
2. Better video quality
Streaming-only customers may not realize it, but they’re actually missing out on the best video quality that Netflix has to offer. The company offers Blu-ray discs as part of its DVD service, and the video and audio quality of a Blu-ray is higher than what users are able to stream. As Home Theater Review explains, most streaming services, Netflix included, enable you to watch movies and TV show episodes at 1080p resolution, but resolution is only part of the story.
While you can stream a movie at the same resolution you’d get watching it on a Blu-ray that Netflix takes a day to mail to your home, the streaming service needs to use much more compression to deliver the movie to you than the Blu-ray disc because it has to compress the file enough to send it at a bit rate that’s equal to or lower than your broadband speed. Because Internet speeds vary wildly, Netflix has to aim for “the lowest common denominator,” and even Netflix’s Super HD 1080p service aims for a recommended target of just 7 Mbps for the best quality.
Even if your network’s speed surpasses the recommended standards, during times of heavy traffic, the speed and therefore the video quality can fall. Compression artifacts, like banding and softness, negatively impact picture quality. Additionally, Blu-rays offer better audio quality. Even when you’re getting excellent video quality by streaming, you aren’t getting the uncompressed multichannel audio that a Blu-ray can offer.
3. Unreliable Internet service
If you’re familiar with the slowdowns and annoyances that can happen when you’re streaming a movie and your Internet service slows down, you can likely relate to the problem of what happens when your Internet service goes down. DVDs and Blu-rays don’t require an Internet connection to work; in fact, as long as you have power, you can watch a movie or a TV show. In fact, if your computer has the proper drive, you can watch a DVD or a Blu-ray on a plane, or really anywhere, without needing an Internet connection.
Steel notes that a major part of the core user base for Netflix’s DVD service is comprised of customers in rural zones with lackluster Internet service. Netflix’s DVD service is a great choice for users with unreliable Internet connections, or even those who aren’t subscribers to an Internet service. The Pew Research Center reported late last year that census data indicated that nearly 25 million households have no regular Internet access.
Pew notes that in its own research, its researchers employ a different tactic, asking adults whether they use the Internet. At the time, 87% said they did. Among households with income over $20,000, most households have their own broadband subscriptions — but just having a subscription doesn’t guarantee a speed that’s conducive to streaming, or the reliability that would make DVD subscribers comfortable dropping their subscriptions.
4. Opportunities for pirating
An unfortunate fact about Netflix’s DVD subscription service is that it’s a target for pirating. A cursory Google search reveals numerous tutorials and pieces of software intended to guide users through the process of ripping rental DVDs or Blu-Rays from services like Netflix, and even as the service’s subscriber count declines, there is still likely a small contingent of users who still subscribe to the service in order to rip the DVDs that Netflix sends them.
Piracy is a potent force in the industry in which Netflix operates, and as The Cheat Sheet reported earlier this year, Netflix actually looks at what’s popular on top piracy sites when purchasing new content for its platform. But Netflix can’t bear the cost of offering all of the content that users want to watch, so many users also turn to service like Popcorn Time to pirate movies in a way that feels much less like pirating than ripping DVDs they borrow from a rental service.