Netflix shutters its DVD rental business, marking the end of the red envelope era

By Samantha Murphy Kelly, CNN Business

(CNN) — Netflix will send out its last red envelope on Friday, marking an end to 25 years of mailing DVDs to members.

The company announced earlier this year it is shutting down its DVD-by-mail service, 16 years after it gradually shifted its focus to streaming content online. Netflix will continue to accept returns of customers’ remaining DVDs until October 27.

Introduced in 1998 when Netflix first launched, the DVD service promised an easier rental experience than having to drive to the nearest Blockbuster or Hollywood Video. The red envelopes, which have long been synonymous with Netflix itself, littered homes and dorm rooms across the country.

Although the idea of receiving a DVD in the mail now may sound almost as outdated as dial-up internet, some longtime customers told CNN they continued to find value in the DVD option.

DVD fans holding on

Colin McEvoy, a father of two from Bethlehem, Pennsylvania and a self-described film fanatic, said he rushed through 40 movies in the last few weeks to get through the remainder of his queue before the service ends. McEvoy has remained faithful to Netflix’s DVD service so he can keep watching Bollywood and obscure independent films not often found on streaming services.

“I was basically watching them as soon as I got them, and then returning the discs as quickly as possible to get as many as I could,” said McEvoy, who has been using Netflix’s DVD-by-mail service since 2001, just three years after it launched.

“I remember I was in high school when I first signed up for it, and the concept was so novel I had to really convince my dad that it was a legit service and not some sort of Internet scam,” said McEvoy, who uses an old Xbox 360 to play his Netflix DVDs. “Now I have friends who’ve seen my red Netflix envelopes arrive in the mail, and either didn’t remember what they were or couldn’t believe that I still got the DVDs in the mail.”

Some other Netflix users stood by its DVD service not only for the selection but for added perks. Brandon Cordy, a 41-year-old graphic designer from Atlanta, previously told CNN he stuck with DVDs because many digital rentals don’t come with special features or audio commentaries.

There are other factors, too. Michael Inouye, an analyst at ABI Research, said some consumers may still not have access to reliable or fast enough broadband connections, or simply prefer physical media to digital, much in the way that some audio enthusiasts still purchase and collect CDs and records.

Why Netflix is quitting DVDs

For Netflix, however, the offering has made less sense in recent years. “Our goal has always been to provide the best service for our members, but as the DVD business continues to shrink, that’s going to become increasingly difficult,” co-CEO Ted Sarandos wrote in a blog post in April.

Shutting down its DVD business could help Netflix better focus resources as it expands into new markets such as gaming as well as live and interactive content. Its DVD business has also declined significantly in recent years. In 2021, Netflix’s non-streaming revenue – mostly attributable to DVDs – amounted to 0.6% of its revenue, or just over $182 million.

The cost to operate its DVD business may also be a factor, especially as Netflix rethinks expenses broadly amid heightened streaming competition and broader economic uncertainty. “Moving plastic discs around costs far more money than streaming digital bits,” said Eric Schmitt, senior director analyst at Gartner Research. “Removing and replacing damaged and lost inventory are also cost considerations.”

Even before Netflix announced the news, some longtime subscribers said they could see the writing on the wall.

“The inventory of available titles, while still vast, had been contracting some over the years with some movies that were once available no longer being so,” Cordy said. “Turnaround times to get a new movie or movies also started to take longer, so I knew it was only a matter of time. But I didn’t want it to end if I could help it.”

Little hope for a DVD revival

Other DVD subscribers were hoping for a happy ending. Bill Rouhana, the CEO of Chicken Soup for the Soul Entertainment – which owns DVD rental service Redbox – told The Hollywood Reporter in April he hoped to purchase Netflix’s DVD business. “I’d like to buy it… I wish Netflix would sell me that business instead of shutting it down,” he said. Redbox remains popular despite the shift in streaming, but took a hit during the pandemic because of the lack of new movies and TV shows to fill the boxes.

A Netflix spokesperson told CNN it has no plans to sell the DVD business and will be recycling the majority of its DVDs through third-party companies that specialize in recycling digital and electronic media. It will also donate some of its inventory to organizations focused on film and media.

Netflix is also offering subscribers a “finale surprise” where they could opt-in to receive up to 10 DVDs selected at random from their queue.

McEvoy, who already subscribes to Disney+, Hulu, the Criterion channel and Mubi, said he’s now testing out other services such as Eros (Indian cinema) and Viki (Korean and Chinese films) for harder-to-find content. Still, he said, he’s “sad” to see Netflix’s DVD service depart.

“I absolutely would not have been able to find all of those movies [I’ve watched] if not for the Netflix DVD service,” he said.

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