Netflix's announcement that they are shutting down their DVD-by-mail service marks the end of an era. The decision, while quite natural at this point, has quite a bit of symbolism in the interplay between technology and scale-based moats. Netflix was an innovator in more than one way.
I understand that Netflix would want to exit this business to focus on their core, and much larger business, but it seems that physical delivery of DVDs is still a viable business for someone. The back catalog of content is enormous and there's no set of streaming providers that can be selected that will cover all content that a physical library could. Also, my understanding was that, once the DVD was purchased by the firm doing the lending, no further license fees were paid, thus insulating the lender from contentious future licensing negotiations and costs. And there's a core group of subscribers that are willing to pay a premium for a service that offered a very broad catalog (unless we think 1.5M people aren't watching their Netflix subscription fees, which is possible). Apple just launched a niche music streaming service for classical music that is unlikely to gain more than 1M customers. I'm a little surprised that Netflix is choosing to exit this business rather than continue to run it as a premium side business or spin it off to another firm where there are synergistic advantages.
I also wonder if it is time for some additional business model innovation in the streaming space:
1. Move to usage-based billing: $1/month to have an account, and then $0.10 - $0.25/hour for content consumption (this also makes account sharing more painful)
2. Launch niche services - similar to the Cambrian explosion of channel variety when cable TV was introduced, have niche services that only have certain segments of content
3. Loyalty programs - along with usage-based billing, the more you spend and longer you keep your account open, increases your status level and unlocks rewards such as free credits, invites to provide early feedback, and in-person rewards from physical movie theaters, coffee shops, restaurants
4. Extreme content curation (aka Coursera for Cinema) - have movie experts or actors create "journeys" through the content that have an overall goal that is somewhat educational - for example for Action movies, what 200 (or even 1000) hours of content and related meta-content would make the user feel like they were not only being entertained, but also educated into the evolution of the media and technique. For example, John Wick 4 had call-outs to many prior movies and video games (The Warriors, etc). These journeys would remove most of the anxiety that comes from not knowing what to watch. Quizes and certifications could be incorporated to increase engagement and feeling of progress. Similar to the IKEA effect, once you had 20 hours invested in a journey, you would probably be much less likely to cancel the service.
I actually never thought of this as a technique for supply - chain optimization
"Netflix’s “no late fees” also had operational consequences. When you mainly incur shipping and handling costs and your customers pay a flat fee, you want to reduce shipping as much as possible. So not only did Netflix want to avoid charging late fees, but they preferred customers to hold on to the DVDs longer than usual. Similar to your local gym: They want your monthly subscription but they prefer you rarely show up!"
I loved this!