Is Netflix Ready to Pull Another Qwikster?

Netflix (NASDAQ: NFLX  ) may have served up blowout quarterly results, but it also seems to be ready to start dusting its DVD business under the rug. 

The leading video service operator revealed on Monday that it will stop providing guidance on subscriber expectations and projected revenue for its DVD business. It will continue to report those metrics on a quarterly basis, but the only guidance it will provide on its original mail-based platform will be in terms of contribution profit. Netflix concedes during the conference call that it's not a matter of visibility. Netflix can see pretty clearly which way its disc-based business is going. The dot-com darling merely wants to emphasize its thriving streaming business. 

The move makes sense. Netflix now has more than 36 million streaming subscribers. There are now fewer than 8 million disc-based renters. If it were to spin off its DVD business -- the way it briefly planned to do two summers ago during the Qwikster fiasco -- the move would only infuriate fewer than a quarter of its streaming customers.

Is now the right time to spin off its DVD business? Is it time to cash out of physical rentals altogether? In this video, longtime Fool contributor Rick Munarriz argues that the signs are there to suggest that Netflix wants to be seen exclusively as a streaming company.


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  • Report this Comment On April 24, 2013, at 8:47 PM, AceInMySleeve wrote:

    It was the price increase presumably not the splitting of the business that was the real kick in the head. It's just that doing them both together was sticking a fork in a gaping wound.

    If coinstar bought the DVD business, and offered some kind of value add I have a hard time seeing people getting all that angry.

    At the same time, it just doesn't seem to be something worth messing with, unless a bidder really dropped a bundle. DVD is a pretty nice stream of cash, and if originals is 10% of their content budget they have plenty of funds.

  • Report this Comment On April 24, 2013, at 8:48 PM, AceInMySleeve wrote:

    Thing is the majority of DVD customers have streaming as well, so that's the people you don't want to aggravate. If it was two distinct groups than I'm sure the DVD business would be toast.

  • Report this Comment On April 24, 2013, at 11:10 PM, rsg003 wrote:

    I would be one of the 8million and I would drop Netflix in a heartbeat if they got rid of the DVD's in the mail as without that option there Streaming selection is kind of pitiful to be honest...less than a quarter of what they have to Stream is even worth's getting better though. Without the DVD's in the mail I would just goto Redbox here and there.

  • Report this Comment On April 25, 2013, at 6:00 PM, The1MAGE wrote:

    I didn't join Netflix until they split their service. Honestly I never had an interest in Netflix until they started streaming.

    I've said it before, and will say it again. I think Qwikster was a good idea that was implemented badly, especially the PR side. This should have been a more gradual change, not the surprise event it became.

    They saw the writing on the wall, and the drop in their DVD section shows they were right. (Or that they are not pushing that part of the business.) I believe they simply wanted to not just split the services, but fully spin off the DVD business, sell the stock, and use that money to fund everything they have been doing since.

    Now instead of a big influx of cash, they had to borrow money, and rely on the shrinking income of the DVD side instead.

    I don't see them jettisoning the DVD section right now. Probably one of the reasons they tried to do it the way they did was that they realized how quickly the DVD section was going to plunge. Now sure how many people would want to invest in a spin off now.

    I could be wrong, but now I see them just trying to minimize the costs of that side of the business, and run it as long as it adds to the bottom line. Once the income becomes negligible, or it becomes more profitable to sell the assets of that side of the business, then I see the DVD portion vanishing.

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