Responding to DVD subscription decline, Netflix closes call center

Netflix is closing a call center devoted to its DVD subscription business in Hillsboro, Oregon, letting go of 188 remaining employees, according to a report by the Oregonian. The news is just the latest sign for Netflix shifting priorities away from its DVD business as the number of subscribers still paying for those iconic red envelopes continues to decline.

[company]Netflix[/company] used to have close to 14 million DVD subscribers in Q3 of 2011. Three years later, that number has shrunk to less than six million. The company has responded by closing a number of its DVD distribution centers, and is now looking to manage customer support out of its DVD business offices in Fremont, California.

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Netflix executives have long said that streaming is the future of Netflix, and never introduced DVD rentals in any market outside of the U.S. The company has kept DVDs around in part because the DVD subscription business has much higher margins than streaming, and profits from this line of Netflix’s business were essential to finance its first international expansions.

However, as fewer customers pay for DVDs, the flow of money is also starting to slow down. In Q3 of 2014, Netflix generated $186.6 million in revenue from DVDs, compared to $319.7 million in the same quarter three years ago. Contributing profits declined from $146.1 million to $89.4 million. That’s still real money, but a lot less than it used to be. Netflix’s U.S. streaming business overtook DVDs as a contributor of profits in early 2013, and the company saw profits in Q3 of $250.9 million from its U.S. based streaming business.

Photo courtesy of (CC-BY-SA) Flickr user Alan Levine.