Pushing the envelope - Netflix ends DVD rentals

Picture: Netflix

The DVD had barely been in existence when I moved to Silicon Valley at the beginning of 2001. I should know: I’d been involved in launching the format just four years earlier. It was, as tech executives are prone to say, a “game changer” - storing an entire film on, effectively, a CD with picture quality visibly superior to VHS tape. No wonder it was the subject of an obligatory ‘format war’ between rival companies promoting their respective high-capacity video disc platforms with the hope of benefitting from lucrative patents.

As the DVD was in 1998, the Internet was in relative mass-adoption infancy when 26-year-old former US Marine and Stanford computer science graduate Reed Hastings launched Netflix in the Silicon Valley satellite town of Los Gatos. Hastings cleverly combined the nascent DVD format with an online portal for home video rental to rent out new-release films for $6 each, with up to three discs at a time sent out by post. The first disc Netflix sent out was a copy of Tim Burton’s Beetlejuice.

Four years later the New York Times reported that Netflix was sending out almost 200,000 discs every day to some 670,000 monthly subscribers, a figure that soon ballooned to a million. By then, amongst hyper-tech savvy Silicon Valley residents, Netflix’s distinctive red envelopes were landing on doormats like leaves in an autumn storm. Moreover, it became routine for subscribers to go to ever-more creative lengths to post them back to Netflix before late fees were applied. I was travelling quite a bit within the US at the time for work, so I would take my return envelopes with me, looking for the most obscure and remote postbox locations from which to send them, just for a laugh. 

Equally entertaining was the creation of the wishlist from which films were chosen: unlike a traditional video rental shop, browsing Netflix’s menus ensured that at any given time, as soon as you’d returned one disc, another would be on its way. As a result, there would be tremendous expectation of a new disc or discs arriving in the post.

Of course, this all now seems rather arcane, given the overwhelming pivot toward on-demand services such as Netflix itself. But go back to the early 2000s and Netflix can be credited with not only driving the popularity of DVD, but also opening up a mesmerising choice of rentable titles, from big-budget blockbusters to independent productions, documentaries and cult Japanese anime films. 

Indeed at one point, Netflix was sending out more than a million discs a day drawn from a 75,000-strong library, enabling the likes of me to experience films I would never have watched had I been hurriedly scanning VHS spines - with my head cocked awkwardly to one side while trying to read vertically - in a traditional rental shop, the likes of which arguably Netflix put paid to.

Incredibly, though, Netflix has not stopped its DVD service, even after launching its now ubiquitous streaming platform in 2007. Until now: “After an incredible 25-year run, we’ve made the difficult decision to wind down at the end of September”, Netflix’s co-chief executive Ted Sarandos said earlier this year, hailing how the company’s DVD postal service had “paved the way for the shift to streaming”.

Picture: Netflix

Not surprisingly, maintaining the DVD rental business has, according to Sarandos, “become increasingly difficult”, accounting for just $126 million of Netflix’s total revenues of over $31 billion. Still, not a bad return. However, the end of DVD rentals does come at a time of changing fortunes for Netflix, for the first time in its 25-year history. Rival streaming services such as Disney+, Apple TV and Paramount+ have been increasingly eating into revenues and subscribers, leading to Netflix losing a million of them in the first six months of last year, its first audience decline in a decade.

To counter this the company began introducing new tiers of advertising-supported packages, as well as announcing a crackdown on so-called password sharing, a less-than popular measure amongst families seeing teenagers head off to university with barely the financial means to remain connected to their favourite shows.

At its peak, the DVD service had more than 16 million subscribers, but today the number is just 1.5 million, and all based in the US. Contrast that with the 223 million subscribers Netflix’s VOD service has globally. Given the relative numbers, winding up the DVD business will barely meet a whimper but there are still those who, 25 years on, swear by it. “When you open your mailbox, it’s still something you actually want instead of just bills,” subscriber Amanda Konkle of Savannah, Georgia, told Associated Press, having been using the platform since 2005.

Others have continued to rent DVDs from Netflix because, surprisingly, it invariably offers a greater choice of titles. Licensing conditions on the streaming service can mean that some films are available only during a particular window. 

Some subscribers even came back to Netflix’s DVD rentals during the pandemic as - incredible to think as it is - they ran out of things to watch via online platforms. Many - especially scholars of film history - have found Netflix’s vast library of vintage movies indispensable. 

That said, the company has been progressively winding down the DVD service, reducing the availability of many titles as logistics and other resources have been diverted into the main business. “Our goal has always been to provide the best service for our members,” Sarandos said in a statement, “but as the business continues to shrink that’s going to become increasingly difficult.” As the company itself acknowledged in a letter to investors earlier this year, the DVD service was the "booster rocket that got streaming to a leading position".

The DVD itself is not dead yet. Much like the optical CD technology from which it was adapted by Philips, Sony and their rivals at Toshiba, people are still buying DVDs. The Salvation Army says that DVD sales have more than doubled in ten years at their charity shops, as entire collections have been donated and then snapped up on a whim. Another charity, the British Heart Foundation, said that they had sold more than 1.9 million DVDs last year through their shops. 

Like collecting rare records and books, the ‘lucky find’ is helping, as those trying to find out-of-print titles or not available on streaming services come across rarities. And as the cost-of-living crunch continues to bite, families are even ‘cord cutting’ and returning to physical forms of entertainment that cost a fraction of the monthly cost of online packages. Similarly, there are plenty of households disenfranchised from video streaming due to the fact they live in communities with poor or even non-existent broadband.

There’s no doubt that the rise of streaming has created vast gaps on living room bookshelves - mine especially. My own DVD collection now occupies a sizeable corner of a storage facility (at some stage, to be bequeathed to a charity shop). There is always the chance that DVD might go through a vinyl-style revival, much as CDs continue to sell in the era of Spotify. 

But unlike the business model for music streaming platforms - which is great for the consumer but lousy for the artist - video remains in the grip of Hollywood pricing mechanisms. While it might seem like buying a film from video on demand service is not the same as owning it, I have far less emotional attachment to the DVDs now collecting dust than my CDs (which already went through one purge, 13 years ago, when my library was more or less halved).

I’m probably just not as attached to films as music, knowing that most of what I like to watch is available to stream to my living room TV or my iPad with equal ease and none of the clutter. That said, I can’t help but echo Amanda Konkle: back in the day, when those red envelopes appeared through the front door, there was a sense of excitement not generated since by scrolling through a menu with a remote control. The early days of the Internet, eh?