Did Mailing Nintendo Wii and PS3 Discs Cost Netflix Millions of Dollars?

As of today, Nintendo Wii users no longer have to pop in that pesky disc every time they want to stream content from Netflix. Now, you can watch movies and TV shows directly through a downloaded application, a feature that PlayStation 3 announced last week too. Why did Netflix introduce a disc-based solution for the Wii and PS3, only to end it months later? And how much did that temporary system cost?

Let's crunch some numbers. According to a rep from Netflix, more than 3 million Wii systems have already been connected to Netflix. While the rep declined to confirm how many discs were actually sent out (the number could be even higher), it's safe to assume that at least 3 million Netflix discs were sent out to Wii owners. The Netflix-Nintendo program began in late March and ended this week, only seven months old. With Netflix spending roughly 78 cents in postage for each mailed disc, sending discs to 3 million Wii owners would've cost the company at least $2.34 million.

And that's not to mention the costs of developing, making, and processing these millions of discs. And that's not to mention the likely millions more PS3 owners who also requested Netflix discs. (A Netflix rep could not provide figures.) Was spending millions of dollars on a disc-based solution really worth such a temporary fix?

After all, why did Netflix even develop a disc-based solution if it could've created an embedded digital application, as it had for the Xbox 360? Many have speculated that Netflix was forced to follow a disc-based solution because of an exclusivity agreement with Microsoft. "We believe that the exclusive arrangement limits Netflix's ability to appear on the 'dashboard' for the PS3 or the Wii," argued Michael Pachter of Wedbush Securities in 2009.

Netflix has been vague about the speculation. In an interview with G4TV, a company rep declined to comment on the Microsoft contract, but indicated that discs were the "fastest and easiest way" to get Netflix content for PS3 and Wii users. A rep interviewed by Joystiq also echoed that stance.

"Again, the instant streaming disc represented the fastest and easiest way," the rep explained. "The Netflix agreement with Sony for PS3 is consistent with the terms of our partnership with Microsoft for Xbox 360."

So were the millions Netflix spent on a temporary disc-based solution really worth circumventing a contract with Microsoft? Netflix introduced the PlayStation disc last October, and the Wii disc in March. Couldn't those console owners have waited until Microsoft's exclusivity ended?

On the one hand, Netflix spent loads of cash on a temporary system—which won't exactly please investors. On the other hand, introducing a disc-based solution demonstrates just how loyal Netflix is to its subscribers since, in order to work around the exclusivity agreement, the company was willing to drop millions so PS3 and Wii users could have some taste of console streaming.

"Once you've downloaded the new application," wrote Netflix exec Greg Peters in a blog post Monday, "you can recycle the current streaming discs or keep them as a souvenir."

Or send them back to Netflix and hope they can recoup some of the costs.

Add New Comment

2 Comments

  • misterarthur

    I think it was a really smart idea. The disc was idiot proof, simple to use, and showed how well the streaming service worked. So now I'm hooked. Think about how much Netflix will save in postage by not mailing me movies any longer. One one-time mailing, and say that saves them sending me 15 movies (which I'll now watch via streaming) over the course of the year. Seems smart to me.

  • Robert

    There is another waste to consider too. Netflix has only been available in Canada since Sept. 22 and I signed up that day and it asked if i wanted a free disc for my Wii. I got the disc about October fifth. I haven't even had Netflix for a month and the disc for about two weeks. I would have had no problems waiting two weeks for a disc-less setup.