"NetFlix initially offered a seven-day DVD rental for $4, plus $2 shipping" [1] This is more than it costs to rent from a local video store. Especially on discount days.

Its much easier to start at a higher price point and lower volume with a small team. Hotmail and Wikipedia are businesses that scale much better because they don't handle physical goods.

[1] http://www.fundinguniverse.com/company-histories/netflix-inc...