Netflix Prepares to Send Its Final Red Envelope

Netflix Prepares to Send Its Final Red Envelope

In a nondescript office park minutes from Disneyland sits a nondescript warehouse. Inside this nameless, faceless building, an era is ending.

The building is a Netflix DVD distribution plant. Once a bustling ecosystem that processed 1.2 million DVDs a week, employed 50 people and generated millions of dollars in revenue, it now has just six employees left to sift through the metallic discs. And even that will cease on Friday, when Netflix officially shuts the door on its origin story and stops mailing out its trademark red envelopes.

“It’s sad when you get to the end, because it’s been a big part of all of our lives for so long,” Hank Breeggemann, the general manager of Netflix’s DVD division, said in an interview. “But everything runs its cycle. We had a great 25-year run and changed the entertainment industry, the way people viewed movies at home.”

When Netflix began mailing DVDs in 1998 — the first movie shipped was “Beetlejuice” — no one in Hollywood expected the company to eventually upend the entire entertainment industry. It started as a brainstorm between Reed Hastings and Marc Randolph, successful businessmen looking to reinvent the DVD rental business. No due dates, no late fees, no monthly rental limits.

It did much more than that. The DVD business destroyed competitors like Blockbuster and altered the viewing habits of the public. Once Netflix began its streaming business and then started producing original content, it transformed the entire entertainment industry. So much so that the economics of streaming — which actors and writers argue are worse for them — is at the heart of the strikes that have brought Hollywood to a standstill.

Even before the strikes, streaming had rendered DVDs obsolete, at least from a business perspective. At its height, Netflix was the Postal Service’s fifth-largest customer, operating 58 shipping facilities and 128 shuttle locations that allowed Netflix to serve 98.5 percent of its customer base with one-day delivery. Today, there are five such facilities — the others are in Fremont, Calif.; Trenton, N.J.; Dallas; and Duluth, Ga. — and DVD revenue totaled $60 million for the first six months of 2023. In comparison, Netflix’s streaming revenue for the same period reached $6.5 billion.

Despite the reduced staff, this operation still receives and sends some 50,000 discs a week with titles ranging from the popular (“Avatar: The Way of Water” and “The Fabelmans”) to the obscure (the 1998 Catherine Deneuve crime thriller, “Place Vendôme”). Each of the employees at the Anaheim facility has been with the company for more than a decade, some as long as 18 years. (One hundred people at Netflix still work on the DVD side of the business, though most will soon be leaving the company.)

A few of them started straight out of high school, like Edgar Ramos, and they can run Netflix’s proprietary auto-sorting machines and its Automated Rental Return Machine (ARRM), which processes 3,500 DVDs an hour, with the precision of Swiss watch engineers.

“I am sad,” Mr. Ramos said while sorting envelopes into their ZIP code bins. “When the day comes, I’m sure we will all be crying. Wish we could do streaming over here, but it is what it is.”

Mike Calabro, Netflix’s senior operations manager, has been with the company for more than 13 years. He said the unexpected moments of frivolity were a big part of why he had stayed, like the drawings made by renters on the envelopes or the Cheetos dust and coffee stains that often mark the returns, evidence of a product that has been well integrated into customers’ lives.

But when asked if he had ever met some of the most active customers in person, Mr. Calabro quickly replied, “No!” In fact, the anonymous look of the facility, which provides a stark contrast to the giant Netflix logos that adorn the company’s other real estate, is intentional. Visitors, it is clear, are not welcome.

“If we put Netflix out on the door, we would have people showing up with their discs, saying: ‘Hey, I’d like to return this. Can you give me my next disc?’” Mr. Calabro said.

That was the usual transaction with a video rental retailer, but Netflix wanted to make sure customers knew this was something different.

“It was a decision we made very early on,” Mr. Breeggemann said. “If they knew where we were, we’d run into that problem. And then it wouldn’t be a good customer experience. We wanted to mail both ways.”

Netflix’s DVD operations still serve around one million customers, many of them very loyal.

Bean Porter, 35, lives in St. Charles, Ill., and has subscribed to Netflix’s DVD and streaming services since 2015. She said she was “devastated” that there would be no more DVDs. Ms. Porter was able to use her subscription to watch DVDs of shows like “Yellowstone” and “The Handmaid’s Tale” — episodic television made for other streaming services that would have required her to buy additional subscriptions.

She and her husband also watch three or four movies a week and find Netflix’s DVD library to be deeper and more diverse than any other subscription service. She often hosts cookouts in her backyard and invites neighbors to watch movies on an outdoor screen. That is easier to do with a DVD, she said, than with streaming because of internet connectivity issues. And she has become involved with the DVD operations’ social media channel, posting videos, interacting with other customers and chatting directly with the social media managers working for the company.

“I’m pretty angry,” she said. “I’m just going to have to do streaming, and I feel like what they’re doing is forcing me into having less options.”

To ease the backlash, Netflix is allowing its DVD customers to hold on to their final rentals. Ms. Porter intends to keep “The Breakfast Club,” “Goonies” and “The Sound of Music.” As for the last DVD she intends to watch: She’s leaving that up to fate.

“I have 45 movies left in my queue, and where I land is where I’ll land, as there are too many good options to pick from,” she said.

The employees have a more sanguine attitude. Lorraine Segura started at Netflix in 2008 and used to rip open envelopes — 650 envelopes an hour. When automation came, she was one of the few employees who traveled to the facility in Fremont to learn how to run the machines and pass that training on to others. Now she runs the floor with Mr. Calabro as a senior operations manager.

“I’ve learned a lot here: how to fix machines, how to make goals and hit targets,” she said before leading her team in a round of ergonomic exercises to prevent repetitive stress injuries. “I feel empowered now to get out in the world and do something new.”




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