Six million people are still getting Netflix’s red envelopes in the mail

Coasters, anyone?
Coasters, anyone?
Image: AP Photo/Paul Sakuma
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Netflix’s pioneering DVDs-by-mail delivery service has declined as its streaming service has taken off. And naturally, Netflix has paid less attention to its legacy business: The company recently stopped mailing DVDs on Saturdays, and dropped its signature “red envelope” corporate branding in a recent makeover. But DVD rental is still a real business for Netflix, and its decline is now even stabilizing.

Netflix had 6.26 million DVD subscribers at the end of June, the company just reported in its second quarter results. It lost 391,000 DVD subscribers between April and June as customers switched to the streaming-only service or left Netflix altogether. But that decline was actually an improvement over last year, when Netflix lost 475,000 DVD subscribers during Q2.

Netflix US DVD subscriber chart Q2 2014

Why is its decline curve flattening? Much like AOL’s resilient dial-up business, there’s still an audience for last generation’s movie technology, plus the newer Blu-ray format. And the selection of DVDs is still far greater than what’s available to stream over the internet. “DVD and Blu-ray offer amazing and comprehensive selection that keeps a core membership uniquely satisfied,” Netflix CEO Reed Hastings wrote in his quarterly letter to shareholders (PDF).

The DVD service is still a money-maker, too. Last quarter, DVD subscriptions generated $195 million in revenue, about 15% of Netflix’s total. But it’s a higher-margin business than streaming: $93 million in “contribution profit” for the DVD segment represented 30% of the company’s total. This despite a total of $0 in marketing spending so far in 2014, down from a still paltry $292,000 in 2013. By comparison, Netflix spent $65 million on marketing for its streaming service last quarter.