Netflix Has a New Trick Up Its DVD Sleeve

By Markets Fool.com

Image source: Netflix.

Continue Reading Below

Renting DVDs by mail may be Netflix's 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 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.

Continue Reading Below

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.

The article Netflix Has a New Trick Up Its DVD Sleeve originally appeared on Fool.com.

Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.