Netflix is walking away from its once-beloved disc-by-mail service. While many stopped spinning discs long ago, more than a million Americans still look forward to seeing red envelopes in their mailboxes. So who will pick up the slack?

In this issue:

• Netflix’s call by the numbers

• Could the red kiosk replace the red envelope?

• Could others pick up the slack?

Pulling the plug on spinning discs

Back in April, Netflix co-CEO Ted Sarandos posted a farewell letter to Netflix’s DVD-by-mail service. Those red envelopes that helped put Blockbuster out of business will stop shipping on September 29, 2023.

Over its 25-year history, Netflix has shipped over 5.2 billion discs to 40 million customers.

Unfortunately, this legacy business couldn’t keep pace with Netflix’s streaming juggernaut. In Netflix’s 2022 fiscal year, DVD subscription revenues fell 20% to under $146 million. Global streaming revenues, by comparison, came in at $31.5 billion.

The company stopped breaking out its DVD subscriber numbers years ago. Proportional to its revenue, Netflix would have had about 1.3 million DVD-by-mail subscribers.

Spinning up an opportunity?

Netflix’s decision surprised most people — they had no idea the service still existed. But the red envelope mattered to a million subscribers and their families.

People in rural America looked to Netflix as an affordable source of content since rural broadband is often too slow and unreliable for streaming. And since video rental stores no longer exist, Netflix was the most convenient and reliable way to get content.

Even with accessible high-speed internet, Netflix’s DVD catalog was always better than its streaming catalog. With somewhere between twenty to thirty times as many titles as the streaming business, the DVD-by-mail operation supported a wider variety of tastes.

To see what I mean, look at these numbers from the Flixed data team:

96% of Netflix’s streaming movies were released within the past 23 years. Watching classic content on Netflix (for whatever definition of “classic” you use) just isn’t possible — and other streaming services aren’t any better.

Redbox waiting in the wings

Redbox is the company best-positioned to pick up the business Netflix is dropping. The familiar red kiosks are in 31,000 grocery stores and Dollar General locations nationwide. That puts 90% of Americans within easy access to Redbox disc rentals.

However, the pandemic years didn’t do Redbox any favors. With people isolating at home and movie studios going straight to streaming, fewer people needed to rent shiny discs. The company’s financial struggles led to a buyout in 2022 by Chicken Soup for the Soul — the owner of former-Sony streaming service Crackle.

Things began changing this year. Studios realized making their content exclusive was a money-loser. Licensing deals are making more titles available to streamers. At the same time, movies are returning to theaters — along with the disc rental window.

Redbox did record business when The Super Mario Bros. Movie hit its rental kiosks. “This is one of many major films coming to our kiosks,” Chicken Soup for the Soul CEO William J. Rouhana said in a press release. “We expect this positive momentum to continue as more consumers seek low-cost entertainment options.”

Although Rouhana has publicly mused about buying Netflix’s DVD business, there’s no evidence Netflix wants to support a competitor — even one as small as Redbox.

Disc distributor dark horses

Although a few obscure companies offer rent-by-mail services, none look like they’re positioned to provide a nationwide service to the general public. Gamefly is the biggest but isn’t widely known outside its gamer niche.

But there may be another dark horse people could turn to. Almost every community in the United States has an organization that already loans DVDs and Blu-rays — for free.

Public libraries.

Sure, libraries are resource-constrained. They aren’t likely to unite into a single media distribution service. But the companies that serve libraries could. Kanopy and Hoopla are streaming services you can get free with a library membership.

E-book distributor Overdrive owns Kanopy, so expanding beyond digital distribution may be a challenge. Hoopla, however, is owned by Midwest Tape, which built its business on distributing physical media to libraries.

Our takeaway: Cassettes are making a comeback, why not DVDs?

DVD-by-mail may have been too insignificant to continue at Netflix, but it could be an opportunity for someone else.

Redbox won’t get its hands on the red envelope branding or mailing list. On the other hand, the company already has a distribution system to support its kiosks. How much effort would it take to ship discs by mail?

For that matter, a library media distributor like Hoopla could step into the gap. Bandwidth-challenged rural customers form a solid base for a business that doesn’t need to hit Netflix numbers. So do the cinephiles, film students, and niche content fans who want a deep catalog to rent from. The red envelope may be history, but I predict someone will start mailing silver discs by the end of the year.

If not, maybe it’s time to bring the video store back?

The Watchlist

Adam Devine is working really hard to impress his new in-laws in The Out-Laws, available to stream on Netflix now.

Horror-comedy The Horror of Dolores Roach dropped its first season on Amazon Prime Video, available to watch now.

Bleach returns with the second season of Thousand Year Blood War - The Separation, coming to Hulu, Saturday, July, 8th.

The murder mystery continues in Apple TV’s The Afterparty season 2, coming to screens, Wednesday, July 12th.

Max’s newest limited series from filmmaker Steven Soderbergh, Full Circle, hits the platform on Thursday, July 13th.

The vampire gang is back in the 5th season of What We Do in the Shadows, premiering on Hulu, Friday, July 14th.

The supernatural plague has reached Spain in Netflix’s Bird Box Barcelona, the spinoff film releasing on Friday, July 14th.