Netflix sees steady erosion in DVD rental business

The red envelopes remain an important source of revenue and profitability, but the company has little interest in bringing back lost DVD subscribers or mining for new ones. "We're not planning any specific retention efforts, and we don't plan to market the DVD service anymore," said Netflix CEO Reed Hastings. "We expect DVD subscriptions to decline steadily for every quarter forever." From Paid Content:

"A DVD subscriber has a number of variable costs, postage among them ... If they were only going to use one service, we'd much prefer them to use the streaming service." With Netflix evolving from its origin point as an online DVD service to a digital content company that wants to go head to head with pay cable giants like HBO, pulling faith out of the disc business will have its short-term consequences.

Netflix had a fairly strong quarter, with revenue jumping 47 percent even as its earnings slid 13 percent. It also gained about 600,000 customers after losing 800,000 last summer following a price increase.