Netflix’s DVD-by-mail service is coming to an end.
The company announced Tuesday that it is saying goodbye to its original business — mailing out DVDs in its signature red envelopes — after 25 years.
“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-Chief Executive Ted Sarandos wrote in a blog post. “So we want to go out on a high, and will be shipping our final discs on September 29, 2023.”
The end of an era for Netflix comes at a time of broader transformation for the business.
Netflix’s business shifted long ago from its origins of mailing out DVDs, which started in 1998. It’s now a streaming service with more than 232 million subscribers and a robust apparatus for producing its own shows and movies.
And over the last couple of years, Netflix has morphed its business into one that is no longer just a subscription video-on-demand service, but one that offers live programming, mobile games and a version with ads.
Netflix on Tuesday gave a mixed earnings report, disclosing first-quarter subscriber growth that fell short of analyst expectations. The Los Gatos, Calif., streamer added 1.75 million subscribers worldwide. Analysts had projected Netflix would add about 2.3 million subscribers.
Revenue increased about 4% to nearly $8.2 billion in the first quarter, slightly missing analyst estimates, as the company continued to roll out its cheaper, ad-supported plan in an effort to appeal to cost-conscious consumers.
Netflix’s net income was $1.3 billion, down from nearly $1.6 billion a year earlier. Netflix profits beat Wall Street expectations.
The stock closed at $333.70 a share on Tuesday, up 0.3%. In after-hours trading, the stock declined slightly, down about 0.8%.
Popular Netflix series in the first quarter include action thriller “The Night Agent,” which has drawn more than 605.6 million hours of viewing time since it launched March 23 and is the company’s sixth most-watched English-language show, based on hours watched in the first 28 days on the service.
The earnings report marked the first full quarter of Netflix’s cheaper ad supported plan, an effort that came after years of being averse to commercials. Netflix began running ads amid increased competition among rivals such as Disney+, Hulu and HBO Max, which offer cheaper plans with commercials.
“Engagement on our ads tier is above our initial expectations and, as expected, we’ve seen very little switching from our standard and premium plans,” Netflix said in a letter to shareholders.
The company also expanded efforts to crack down on password sharing by compelling nonpaying Netflix users to subscribe. Those efforts will come to the U.S. in the second quarter, Netflix said. The password sharing crackdown was previously expected to start in the U.S. late in the first quarter, but was delayed.
Netflix warned that pushing nonpaying Netflix members to subscribe would probably cause people to cancel memberships initially, but argued that the bet will pay off in the long run. The company said it has seen its membership base grow in Canada, where it launched paid sharing in the first quarter.
But Netflix stumbled last Sunday when it planned to live broadcast the “Love Is Blind” Season 4 reunion show, which went awry because of a technical issue, causing significant delays and many users not being able to see the program until the next day.
Netflix co-CEO Greg Peters said the problem was caused by a bug that was introduced as the company was trying to improve its live-streaming performance following the airing of its Chris Rock comedy special in March.
“We hate it when these things happen, but we’ll learn from it and get better,” Peters said. “We do have the fundamental infrastructure that we need.”
It was the second time Netflix delved into live programming after the highly anticipated Rock event. Many streamers, including Apple TV+ and Amazon Prime Video, have dabbled in live programming to create appointment-style TV viewing for events such as sports games.
Although Netflix remains the largest subscription streaming service, its market share in streaming revenue is shrinking, according to analysts.
By the end of the year, Netflix is expected to have a 26.3% share of U.S. subscription streaming revenue, down from 49.1% in 2018, before the launch of such rivals as Apple TV+ and Disney+, according to research firm Insider Intelligence.
Studios and streaming services including Netflix are also facing a potential strike by unionized TV and film writers. Hollywood screenwriters are negotiating with the Alliance of Motion Picture and Television Producers over a new three-year contract. The current deal expires May 1.
Writers are seeking more compensation for their work, including higher residual payments from streaming.
This week, members of the Writers Guild of America voted 98% in favor of authorizing their leaders to call a strike if an agreement is not reached with the AMPTP. A strike could significantly affect studios, which rely on writers for scripted programming.
Sarandos said in a recorded earnings presentation that the company wants to avoid a strike. But if there is one, Netflix has enough content that it can “probably serve our members better than most” entertainment companies, he said.
“The last time there was a strike, it was devastating for creators,” Sarandos said. “It was really hard on the industry.”
He added, “We are at the table and we are going to try to get to an equitable solution so there is no strike.”
