And Netflix's DVD side of the business (the one Reed Hastings wants to kill somehow) is turning in 50% margins.

http://techcrunch.com/2012/01/25/netflixs-streaming-dvd-marg...

(That's old, they've dropped precipitously since then to something like 48%...)

> And Netflix's DVD side of the business (the one Reed Hastings wants to kill somehow) is turning in 50% margins.

DVD rental is a high-margin but stagnating market, while streaming is a low-margin but growing market.

The stock market believes that it's better to expand profitlessly than to remain small but profitable. See Amazon's P/E ratio.

Besides, Reed Hastings is a tech guy. He cut his teeth on the Purify memory leak detector. He claims that he always wanted to do streaming -- it's just that the broadband infrastructure wasn't well-developed In 1997, whereas DVDs were just then starting to take off. (And they happened to weigh under an ounce, which made them cheaply mailable.)

Stagnating at 50% returns is a strange kind of problem. Even Reed has admitted streaming will never get there. And it's stagnating because Netflix has no interest in growing that side of the business. They don't advertise it, they bury the sign up option on their page, they've tried to split it off, they've arbitrarily raised its prices... I mean, easy, drop to 30% margins and buy an ad, you'll get growth again.

Some people think that being a tech guy is exactly what's blinding Reed to the fact that the licensing problem is a far bigger problem than the shipping costs..