Netflix is focusing on digital video services while the DVD-shipping business is left to wither on the vine. But the domestic streaming segment delivers operating margins of just 18.5% vs. the DVD business sitting pretty at 50.1%. Is management certifiably insane for chasing growth in a far less profitable market?

In this video, Anders Bylund will explain why the streaming strategy makes sense. It's a riveting story of dueling business models: fixed costs vs. fixed margins. Watch his take, then drop down to the comments box to share your own views on the subject.


The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.

The article Why Netflix Is Chasing Growth in a Lower-Margin Market originally appeared on Fool.com.

Fool contributor Anders Bylund owns shares of Netflix, but he holds no other position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. The Motley Fool has a disclosure policy We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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