Please ensure Javascript is enabled for purposes of website accessibility

Netflix Has a New Trick Up Its DVD Sleeve

By Rick Munarriz - Feb 20, 2016 at 9:06AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A new feature that lets disc-based subscribers receive curated lists of discs with a single click is smarter than you might think.

Image source: Netflix.   

Renting DVDs by mail may be Netflix's (NFLX -3.31%) original business, but it's never too late to learn a new trick. Netflix introduced an "Add All" option to its physical disc platform last week, allowing subscribers to add an entire curated list to their queues with a single click.

Netflix is kicking off the feature by allowing its users to add all of this year's Oscar-nominated films. Members can choose any of the major Academy Awards categories, instantly adding all of the DVDs or Blu-ray discs featuring the nominations.

It's not much of a move, technologically speaking. However, it's an interesting development for a company that didn't emphasize the availability of new releases in its early years. Netflix didn't want all of its subscribers adding the same fresh market releases to their queues. The logjam would be ridiculous. It would either place a burden on Netflix to order more copies than it needed after the initial wave or disappoint subscribers facing long waits to get them. This could be why Netflix got so good about mining data for recommendations, steering early members to older titles with an abundance of availability.

Now Netflix seems to be throwing caution to the wind, encouraging its user base to add the same movies through these curated lists. It's a curious move, and we'll find out soon enough if it creates long waits for the nominated films. Then again, it's not as if shipping discs in red mailers is a big part of its business these days.

Netflix closed out 2015 with just 4.9 million DVD-viewing accounts, 16% fewer than it had a year earlier. It's not as if somebody else is stealing those customers with rival disc platforms. Most of the traditional video chains bowed out long before Blockbuster. Outerwall's (OUTR) Redbox is still dishing out DVDs, Blu-rays, and even video games through its kiosks, but that business is fading even faster than Netflix's DVD arm. 

Outerwall has seen its disc rental volume shrink 24% over the past year. It gets worse as we work our way down the income statement: Outerwall's operating profit has been cut in half. Netflix only saw its DVD segment's operating profit dip by 10%, so clearly it's the one that's making the lower volume work.

Mailing out DVDs isn't the way most of the world experiences Netflix these days. Its global user base of streaming accounts has grown by 30% over the past year to 74.8 million. However, Netflix's DVD business remains highly profitable, generating nearly enough of an operating profit to offset the steep losses internationally as the streaming service expands aggressively overseas. 

Let's also not dismiss the potential for "Add All" to increase retention. After all, populating a queue with five to eight nominees -- some that have yet to be released -- will keep DVD accounts busy for some time. As Netflix incorporates other curated lists, queues will get longer and the incentive to bolt will diminish. The "Add All" feature may seem petty to a seemingly fading segment of its operations, but it's once again proving why Netflix is the smartest content distributor in the living room.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$182.88 (-3.31%) $-6.26
Coinstar, LLC Stock Quote
Coinstar, LLC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.