Netflix is ​​ending its DVD service, 5.2 billion discs later

Call up your Luddite loved ones and your nostalgic friends who still cherish physical media. After 25 years, Netflix is ​​ending its DVD-by-mail business.

Before it turned the entertainment industry upside down and ushered in the streaming era, Netflix was a company whose business model revolved around sending DVDs through the mail in easily recognizable red and white envelopes. At its peak, in 2010, about 20 million people subscribed to the DVD service. But the practice has long felt anachronistic, and the company said on Tuesday it will ship its last DVDs to customers on Sept. 29.

How many customers? Netflix no longer breaks those numbers out. But whoever they are, it’s time they dust off whatever DVDs they have left and send their red envelopes back to Los Gatos, California, where they can retire to the landfill for good.

“Those iconic red envelopes changed the way people watched shows and movies at home — and they paved the way for the shift to streaming,” the company’s co-chief executive Ted Sarandos said in a letter. “To anyone who’s ever added a DVD to their queue or waited at the mailbox for a red envelope, thank you.”

The letter also mentioned some DVD trivia. “Beetlejuice”, starring Michael Keaton and Geena Davis, was the first DVD shipped by the company in March 1998. The most requested was the feel-good movie “The Blind Side”, starring Sandra Bullock. And the company has shipped more than 5.2 billion DVDs over the years.

The DVD announcement was part of Netflix’s first-quarter earnings report, which illustrated just how dominant streaming has become for the company. Putting in a strong fourth quarter when it added 7.7 million subscribers, Netflix said revenue was up 4 percent from a year earlier to $8.1 billion and earnings were $1.3 billion .

The company also said its average paid membership was up 4 percent last year and added 1.75 million subscribers. Netflix’s subscriber base now totals 232.5 million worldwide.

But Netflix just missed its revenue guidance for the quarter and fell short of Wall Street’s expectations for new subscribers, leading analysts to worry it hasn’t recovered from last year’s correction.

The company is facing serious headwinds, including a possible writers’ strike, increased streaming competition and a burgeoning live business, which faltered over the weekend when technical issues delayed Netflix’s acclaimed “Love Is Blind” reunion show.

The first-quarter results “leave open questions about the company’s ability to revitalize its business with an advertising layer and a paid password-sharing program,” said Paul Verna, principal analyst at Insider Intelligence.

Mr Verna added that Netflix’s revenue outlook for the second quarter was also lower than what investors had expected. “These are worrying signs for a company that, while still leading the industry, is struggling to regain its mojo,” he said.

Mr. Sarandos downplayed any disappointment, calling the quarter — the first in which Greg Peters also served as co-chief executive — “a business-as-usual quarter for us.”

Mr. Peters acknowledged the problems with the “Love Is Blind” live broadcast. “We fell short of the standard we expect of ourselves to serve our members,” he said.

While giving few details, Netflix said it was pleased with the performance of its new ad tier, which offers monthly subscriptions for just $6.99, and had seen little evidence of people switching from the standard and premium plans to its cheaper ad-supported plan.

The company also said its efforts to crack down on password sharing in four markets – Portugal, Spain, New Zealand and Canada – went well. In Canada, the company said, the paid membership base is now larger than before the crackdown, and revenue growth is now faster than in the United States.

The company plans to expand the crackdown more broadly in the current quarter, including to the United States.

Netflix attributed the strong quarter to new seasons of shows like “Outer Banks,” “You,” and “Ginny & Georgia,” and the release of the sequel to the movie “Murder Mystery,” starring Adam Sandler and Jennifer Aniston. Season 1 of the spy drama “The Night Agent” performed particularly well, with over 515 million hours watched.

At one time, Netflix’s biggest liability was its dependence on constantly producing original shows and movies. Now the company is producing new seasons of already established shows and movie sequels more frequently, a switch that has some analysts worried.

“The health of any streaming service is determined by the strength of its catalog,” said Stephen Beck, co-founder of the management consulting firm cg42.

He said he was concerned that Netflix’s reliance on existing shows made the service less valuable. He noted that a typical consumer will likely subscribe to two or three streaming services, with Amazon Prime Video likely being one because of everything else a Prime membership offers.

“You have to get the portfolio fresh, which is why it’s by far the most important thing they can talk about and bring forward,” said Mr. Beck.