How Amazon shredded the red envelope
The e-commerce giant's Prime service is picking Netflix's pocket with incentives like HBO, 'Downton Abbey' and 2-day shipping.
It took eight years and a whole lot of neglected days in the mailbox, on the coffee table and hidden under the television, but the Red Envelope and I are done. How anyone stays in this failing relationship is beyond me.
I was first introduced to Netflix (NFLX) DVDs by mail in 2006, which technologically speaking is a lifetime ago. I was still making runs to the local Blockbuster, still paying late fees and still buying into an almost completely worthless basic cable package. The first months of Netflix were a gift from my Dad, but the value it offered then made it worth hanging on to.
Now it's an antique. It should have been dropped it in 2011 when Netflix split its DVD and streaming packages and effectively doubled the price of that combination, but Netflix's streaming library wasn't quite sturdy enough to justify dropping the more current DVD selection.
Paid subscriptions for Netflix's DVD delivery were more than 14 million at the time of the split. They dropped to fewer than 6.8 million by the end of last year -- compared to 41 million streaming subscribers. Netflix's DVD revenue droped by $100 million within the last year alone, which dovetails nicely with a $110 million drop in DVD content acquisition over the last two years. Basically, Netflix DVD customers have been routinely punished for holding on to a service Netflix no longer values.
Half of my DVD queue shifted onto the streaming list within that time. Netflix struck deals for the Miramax back catalog and for Disney (DIS) releases. An archaic, connected Blu-Ray player with only Netflix yielded to a Roku box with Hulu providing next-day airings of "Parks & Recreation" and "The New Girl" and Amazon (AMZN) streaming every music purchase I've ever made on that site through its player. Amazon Prime Video's library seemed redundant, but allowed for rentals and occasionally offered some proprietary content like "Downton Abbey."
On a weekly basis, Netflix DVDs served as a reminder of just how much they'd been innovated out of relevance. Movies that seemed worth watching when added to the queue weeks before lingered around the house for days because the mood suited comedy or drama more than horror or sci-fi. The loading of discs, the interminable previews, the unskippable commercials and the menu interface are all things you'll put up with when pulling an old favorite off the shelf, but not when it's a subscription disc that gets right to the point if you just wait for a streaming version.
Even that "old favorite" argument holds less water, as titles already in the disc library have a way of making it onto the streaming queue just out of convenience. It's the laziest thing in the world, but it's so easy. Would you rather sift through the racks and fiddle with the previews and commercials just to watch "Mean Girls' or "Kill Bill" again, or would you rather just stick those films on your streaming list and play them on whim? Lately, I've been going with the latter.
The final shove away from the envelope didn't come from Netflix at all, but from Amazon. The online retailer raised its spending threshold for free shipping from $25 to $35 and turned small splurges into serious, substantial orders. Amazon also raised the price of Prime from $79 per year to $99, but announced a deal with HBO that will make that channel's content available on cable-free streaming for the first time.
With Netflix's DVD service costing $8 a month, or $96 a year, and adding none of the residual value of Prime's two-day shipping or streaming content, the argument against dated discs and their red envelopes mounted. After Netflix announced that it would be boosting its own streaming rate to $9 a month for new subscribers (and for current ones two years down the road), the new $108-a-year cost only piled on to the argument against anachronism.
Basically, Netflix not only nudged my $96-a-year in DVD fees out of its pocket, but did absolutely nothing to prevent them from going to Amazon. Forget the fact that Amazon outmaneuvered it by luring in HBO and giving Prime members access to well-worn HBO content only available on disc or pay-per-view elsewhere: It made the effort. By design, Netflix's DVD service hasn't done that in quite some time.
Listen, I'm not so fossilized that I'm unaware of Netflix's reasons for keeping its DVD-by-mail service alive. Much as Apple (AAPL) will hang on to the iPod until the cost of production outweighs the demand, Netflix will gleefully keep taking DVD subscribers' money while it remains profitable to do so. It bolsters the streaming service, it helps pay for content acquisition and it's not really hurting anyone to keep it operational.
It's just not particularly relevant anymore and not alluring enough to cord cutters compared to a broadening library of streaming content. When it was the alternative to weekly trips to the video store, it was revolutionary. When it's just taking up time, money and patience that companies like Amazon, Verizon's (VZ) Redbox Instant and others are actively pursuing with more accessible options, the Red Envelope is more of a burden than a benefit.
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