Netflix Delivers 1 Billionth DVD

SAN FRANCISCO – Netflix Inc. (NFLX) delivered its 1 billionth DVD over the weekend, marking another milestone in the Internet rental service's evolution from a peculiar dot-com to a marquee attraction in millions of homes.

It took Netflix nearly 7 1/2 years to mail out 1 billion DVDs — about seven months less than it took McDonald's Corp. (MCD) to sell 1 billion hamburgers after opening its first restaurant in April 1955.

To commemorate the occasion, Netflix is awarding a lifetime subscription to the Helotes, Texas, customer who received the 1 billionth DVD shipped from one of the Los Gatos-based company's 42 distribution centers nationwide.

Netflix didn't identify the recipient because of its privacy policies but did reveal the title of the landmark DVD — "Babel," one of the best picture nominees in Sunday's Academy Awards ceremony.

The Oscars play a big role in shaping the rental requests of Netflix's 6.3 million subscribers.

"Crash," the best picture winner at last year's Academy Awards, ranks as the most frequently requested DVD from Netflix's library of more than 70,000 titles. "Million Dollar Baby," the 2005 best picture winner, is the fifth most requested rental.

But it doesn't necessarily take a prestigious award to become a big hit on Netflix. The service's second-most rented DVD is "Mr. and Mrs. Smith," a less acclaimed flick best known for sparking an off-screen affair between stars Angelina Jolie and Brad Pitt.

Crossing the 1 billion shipment threshold provides further validation for a concept that was once was mocked as just another wacky idea to emerge from the Internet boom of the late 1990s. The achievement also provides another marketing hook for one of the Internet's biggest advertisers.

Instead of fading into dot-com oblivion, Netflix is fast becoming as much of a household fixture as the living room couch. Last year alone, Netflix signed up 2.1 million new customers, who pay anywhere from $4.99 to $47.99 per month for DVD rentals that are requested online and delivered through the mail.

When Netflix delivered its 100 millionth DVD in May 2003, the service only had about 1.1 million subscribers.

Netflix success has inspired a copycat service from the nation's largest video rental chain, Blockbuster Inc., which says it has dispensed billions of movies since its first store opened in 1985. Dallas-based Blockbuster (BBI-B) has signed up than 2 million subscribers to its online service.

But Blockbuster's challenge hasn't derailed Netflix, which is now shipping an average of 1.5 million DVDs each weekday. At that pace, it will take Netflix about 2 1/2 years to mail out its next 1 billion discs.

But it probably won't take that long, given how fast Netflix has been growing. Management believes the service will add another 1.7 million to 2.1 million more subscribers this year, leaving it with more than 8 million customers heading into 2008. Netflix hopes to have 20 million customers by 2012.

Whether the company achieves that goal may depend on how quickly major movie and TV studios de-emphasize DVD sales and rentals in favor of Internet downloads or other forms of "on-demand" delivery. If that happens, Netflix's DVD-by-mail concept could become as outmoded as drive-in theaters.

Although Netflix doesn't believe the shift to on-demand delivery will happen for many more years, management is starting to position the company for the change by offering subscribers a chance to watch a limited number of movies on personal computers equipped with high-speed Internet connections.