Netflix Letter to Shareholders Shows It Couldn’t Care Less About DVDs

Streaming video and DVD subscription service Netflix announced its first quarter earnings for 2011 today. In its letter to shareholders (.pdf), the company showed off its continued growth, with 3.6 million new subscribers worldwide and $719 million in revenue, but the real story might be the company’s continued march away from its once-bread-and-butter offering – the humble DVD.

The company barely pays lip service to DVD subscriptions, and spends the majority of the letter discussing plans for first-run TV series and movies, expanded network offerings and competition within the streaming video space.

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In 16 pages, the word "DVD" is mentioned only a dozen times, with just over 100 words devoted to the topic in a section titled "DVD was a Booster Rocket, but is not a Differentiator":

We believe that DVD will be a fading differentiator given the explosive growth of streaming, and that in order to prosper in streaming we must concentrate on having the best possible streaming service.  As a result, we are beginning to treat them separately in many ways.  Already, if you look at our signup page for non-members, it is all about streaming.  Having said this, DVD rental is still a great business for us, and we are working on solutions to make sure DVD continues to be a profitable business for us in the years ahead, but it is not core to winning in streaming at this point. 

In the handful of other mentions, we find the word "DVD" next to words like "flattening" and "decline". The writing has been on the wall for months now and here it is again. So what does Netflix have in store, then, for its multiplying streaming customers?

• A "wider and better selection of TV shows and movies then ever before. Netflix points to a partnership with CBS, which it says makes it the "only online premium subscription service that offers shows from all four broadcast networks, as well as many of the largest cable TV networks."
• Increased content with: Sons of Anarchy, Glee, Mad Men, Weeds, Blue Mountain State.
• Look out for more first-run, serialized content like "House of Cards". The company says "Serialized dramas, like the original BBC series on which “House of Cards” is based, have been big favorites on Netflix and we want to confirm our theory that because we are click-and-watch rather than appointment viewing, we can efficiently build a big audience for a well-produced serialized show." If this one is a success, the company says it is like to "license two or three similar, but smaller, deals."
• The biggest competition is coming from Hulu Plus and Amazon Prime, with Dish Networks "likely to launch a substantial subscription streaming effort under the Blockbuster brand," in case you’re looking for an alternative.
• The word “stream” shows up 26 times in the letter, while “DVD” shows up only 12 times. Just saying.

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