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Who Will Benefit If Netflix Ditches the DVD?

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It was the blog post heard ‘round the world…among, you know, the kinds of people who follow this sort of thing:

“Hi there, it’s Jamie Odell, director of product management at Netflix, with an update for members who add DVDs to their Queue from the device they use to watch instantly. We’re removing the “Add to DVD Queue” option from streaming devices. We’re doing this so we can concentrate on offering you the titles that are available to watch instantly. Further, providing the option to add a DVD to your Queue from a streaming device complicates the instant watching experience and ties up resources that are better used to improve the overall streaming functionality. This change does not impact the Netflix Web site, where most members manage their DVD Queues.”

First: Hi there Jamie! Next, wh-aaaaaat?

Like many customers who have grown tired of Netflix’s limited selection of streaming titles (there’s only so many times one can watch Percy Jackson & the Olympians: The Lightning Thief), I still rely on the old-fashioned DVD to get my movie fix. And while the queue change doesn’t make explicit that Big Red is ditching the physical discs, it sure makes it a lot harder for customers to manage their DVDs.

Reaction to the blog post was swift and almost uniformly negative. Over 4,471 users have already left comments, including such gems as: “You ought to leave this up to your subscribers to weigh in on. I think this is a totally foolish move on your part,” and, more succinctly from one anonymous user: “BS.”

Tim Grierson over at Yahoo! explains: “Right now, if you want DVDs from Netflix, the company is less than thrilled with you: They need you to get used to the idea of streaming films and TV shows so that you'll drop the physical disc habit: a craving, ironically, that they themselves created thanks to the ease of their iconic red envelopes.”

But industry experts agree that Netflix has a long way to go before transitioning fully to streaming. For starters, they’ll need to figure out that pesky “all of our streaming titles sort of suck” problem, which begins with ironing out new deals with Hollywood to digitize content.

Then there’s the question of whether or not the Internet can handle a serious jump in streaming content. Louis Bedigian has serious doubts, writing that Netflix’s “online-only dream is a nightmare waiting to happen.” The reason? Lack of bandwidth. Bedigian explains:

“Without question, today's broadband connections are more reliable than they were six or seven years ago. But connections are still being lost. Comcast and other Internet providers still struggle to keep everyone online at all times. Websites are still being overloaded. They still crash, and they still get hacked. These are just a few of the problems that have plagued the Internet from day one and still plague the Internet today, thus begging the question: why should we put all of our eggs into one, problematic basket and assume everything will be okay?”

Still, Netflix is clearly aware of where the puck is headed. Americans spent $2.5 billion renting streaming movies last year, compared to less than $1 billion in 2005, according to the Digital Entertainment Group. DVD rentals, meanwhile, fell $3 billion over the same time period.

But for all the uncertainty over who stands to win and lose from Netflix’s shift to streaming content, there is one party that will decidedly just love it: The United States Post Office.

Before the era of streaming video, Netflix relied entirely on the USPS to make deliveries on time. To their credit, the postal service delivered. But not without taking a significant hit to its bottom line.

Back in 2007, the USPS said that delivering Netflix DVDs cost an extra $21 million a year because envelopes had to be hand-sorted. Netflix, which pays postage on all DVDs, had managed to get a discounted rate with the postal service because they claimed that the DVDs could be easily processed with machines.

But as Gene Del Polito of the Association of Postal Commerce told NPR’s Marketplace, that just wasn’t true.

“The problem is, while the envelopes automated fine on the way out, they didn't on the way back,” he said. “Consequently the postal service was manually processing a tremendous amount of the mail but still allowing them to get credit as if it were automatible.”

Surely, as fewer Netflix customers order DVDs, life at the postal service will become slightly more bearable.

And really, isn’t that one thing we can all get behind?
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