Netflix cuts costs by ending Saturday DVD shipments
Netflix Inc. has quietly stopped shipping DVDs from its distribution centers on Saturdays, a cost-cutting move that signals the company is easing out of the DVD subscription service and keeping its focus on online streaming.
The change comes as Netflix is shedding hundreds of thousands of its DVD customers every quarter, yet gaining as many for its online streaming business continues to grow.
By ending shipments on Saturdays, the company can cut payroll and, one analyst said, save as much as 10% annually on the money it spends to send and receive DVDs to and from customers.
“You end up taking some costs out of the system, which is needed as they get fewer and fewer subscribers on DVD,” said Janney Montgomery Scott analyst Tony Wible.
He figured that ending Saturday shipments could save Netflix $14 million this year and $12 million next year. Previously, he had estimated that Netflix’s total shipping costs would be $140 million this year and $117 million next year.
Other analysts agreed that it was time for Netflix to make some moves regarding its DVD business.
“The future of the business is streaming, not the physical distribution of discs,” said Mike McGuire, a research vice president at Gartner Inc. consulting and research firm.
Last year, the U.S. Postal Service considered ending Saturday mail delivery, which might have boosted Netflix profits by forcing the company to end weekend shipping then.
Ultimately, the USPS backed off its plan, but Netflix decided in early June follow through with its plans after tapering down its Saturday shipments for more than a year.
“Saturdays have been low volume ship days for us,” Netflix spokesman Joris Evers said. Netflix now only ships DVDs Monday through Friday, excluding holidays.
The company saw its DVD subscription service, which is offered domestically only, fall to 6.5 million in March, down 17% from 7.8 million a year ago.
At the same time, subscriptions to its streaming service, offered internationally, skyrocketed 35% to 46.2 million subscribers in March, up from 34.2 million a year ago.
In 2011, Netflix made plans to spin off the DVD portion of its business into a separate service called Qwikster. But users protested, and Netflix scrapped the plan.
Still, it could be years before Netflix shuts down its DVD service completely since it’s still generating solid cash flow, said Aaron Kessler, senior research analyst at Raymond James.
Netflix doesn’t put much marketing behind the DVD service, but it still generated $204.4 million in revenue, about 16% of its total revenue. In last year’s first quarter, the DVD business accounted for 24% of Netflix sales.
Kessler estimated that DVDs will bring in $200 million in operating income this year — “still a meaningful amount.”
Times staff writer Andrea Chang contributed to this report.
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