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Why Netflix Is Chasing Growth in a Lower-Margin Market

By Anders Bylund - Apr 9, 2013 at 6:12PM

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Spoiler alert: The streaming margins won't stay slim forever. These profits scale fast.

Netflix (NFLX 3.55%) is focusing on digital video services while the DVD-shipping business is left to wither on the vine. But the domestic streaming segment delivers operating margins of just 18.5% vs. the DVD business sitting pretty at 50.1%. Is management certifiably insane for chasing growth in a far less profitable market?

In this video, Anders Bylund will explain why the streaming strategy makes sense. It's a riveting story of dueling business models: fixed costs vs. fixed margins. Watch his take, then drop down to the comments box to share your own views on the subject.

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