Netflix and the Death of the DVD?

Netflix has essentially killed Blockbuster, which itself killed the mom-and-pop video store business. And now they're saying "we're going to stop doing DVDs". You will get only online "Watch Instantly" access to movies.

Interesting bait-and-switch.

The first article I read about this was a bit alarmist. It turns out that the switch will happen over a number of years. Apparently Netflix hasn't even peaked, yet, in the DVD space -- that doesn't happen until 2013, according to projections. Nevertheless, I find the predicted shift interesting.

I see a few drivers for the shift away from physical to online:

1. Decrease costs associated with physical management of the DVD media -- mailing costs, storage costs, replacement costs, etc. And it's not just about DVDs, either. Remember videos? 33 1/3 LPs? Tower Records? Who wants to be stuck with the world's largest collection of DVDs, when Gra-ray(tm) comes out?
2. Better control over copyright issues. Personally, I believe this is the main driver. It's easy for customers to copy DVDs, and the RIAA is probably breathing down Netflix's neck about doing stuff to prevent this. With Netflix controlling delivery of the content via the Watch Instantly functionality, they may be able to make it harder to copy movies. I'm not saying they'll be able to control it completely (this is unlikely), but they'll be able to make it hard enough for all but the most determined to make copies, so that from their perspective they'll be making a sizable dent in the "copyright infringement" problem.
3. Better control over your commercial experience. This is probably another big driver. We see this sort of thing already -- when you watch The Daily Show or Colbert Report online, you are not permitted to fast-forward through the commercials, and even more annoyingly, unlike your TV (which you couldn't fast forward either) they are REALLY LOUD, so that you are forced to hear them even if you try to escape them in the bathroom. Netflix will be able to sell this capability to advertisers or sell you premium commercial-reduced service. Great for improving revenue stream either way.
4. Finer-grained customer profiling information. I would have to bet that online viewing offers some interesting data-mining opportunities, including stuff like how often you watch a particular movie, what times of day you watch it, which segments you watch over and over, etc. You know...the kind of stuff that would be great for targeted advertising.

Of course, without physical media, and customers' complete dependence on online providers, it will be interesting to see what happens to prices and diversity/availability of content. But for the reasons I've listed above (and probably others, too) I'd say that the writing is on the wall.