Recently, Netflix (Nasdaq: NFLX) subscribers have started to notice a new tab on top of their browser windows. It's a link that points them to a special part of the website where they can purchase pre-viewed DVDs, much like rummaging through the discount shelf at a local Blockbuster (NYSE: BBI).
Most DVDs on the list cost $10.99 (plus tax), and shipping is free. And while the movies themselves are pre-viewed, the movies come with all the original artwork and packaging and a guarantee that if they don't play properly you can return them for a replacement.
Upon first hearing the news, I must say that my first thought was "finally." Here at the Fool, there have been various suggestions to Netflix to expand the way it makes money, primarily by advertising on its red mailers. Initially, I thought that selling DVDs seemed like it would be a good way to boost revenues. But upon taking a closer look at the offerings and talking to the company, I think it's important for investors not to overstate this portion of Netflix's business. In fact, they should all but ignore it.
First, the current selection of for sale movies is not distinguished for either its quality or its depth. While I understand that movie tastes vary, the current list features titles such as Alfie, King Arthur, Ladder 49, and Mr. 3000 -- not exactly movies you'd call classics. To be fair, you can buy copies of movies that have done better in the box office or received critical acclaim such as Being Julia, Closer, The Village, and Hotel Rwanda, but it's still safe to say that you probably won't see a chapter from the Star Wars saga or The Notebook anywhere on the list. The reason? DVDs offered for sale are ones that, according to the company, just aren't moving as much through the subscribers' queues. Accordingly, it's not particularly reasonable to expect significant sales increases based on the rollout of the aforementioned policy.
Second, Netflix informed me that any revenues from this program are already included in the company's guidance. Since there was no promotional announcement about this program, that most likely means the expected financial impact from this feature is minimal.
Thus, I think it's best to view this move as a way of making the company slightly more efficient -- for every DVD sold that's not circulating, the company can recoup some of its original investment. And running a more efficient operation never hurt anyone.
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Fool contributor Marko Djuranovic
owns shares of Netflix but no other company mentioned in this article.
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