DVD-by-mail

DVD-by-mail is a business model in which customers rent DVDs and Blu-rays of films and television shows, video games and VCDs, among other film media online, for delivery to the customer by mail. Generally, all interaction between the renter and the rental company takes place through the company's website, using an e-commerce model. Typically, a customer chooses from a list of film, show or game titles online and selects the titles she or he most wants to watch. As a customer's requested titles become available, the company sends them out to the customer through the mail. Once the customer has consumed the content, she or he sends the media back to the company via the mail.

Most companies operate on the following model:

Most companies let customers keep the films for as long as they want; customers are, however, limited to a set number of discs out at any one time. Commonly, once a disc is returned, another is sent out. Some companies or plans may have a limit on the total number of movies rented in a month. Memberships are usually billed monthly, and includes postage both ways.

Variations exist; for example, some companies also offer video game rentals while others offer music. Redbox allows a user to reserve DVDs or Blu-ray discs online to retrieve and return the DVD at Interactive kiosks located in various retail establishments. Netflix began an online streaming program allowing for the online viewing of select movies and TV shows.

Given sufficiently fast mail delivery times, customers on "Unlimited" plans who return their discs quickly enough can receive enough shipments in a month that the company's actual cost of delivery exceeds the subscription fee, making this type of customer unprofitable. Even below this point, higher volume customers are by definition less profitable than customers who receive fewer discs per month. If these customers become too numerous, there are various measures which the rental company can take.

One is the so-called "throttling" approach, which received significant publicity with regard to Netflix (which refers to the practice as a "fairness algorithm"). In this case, high-volume customers may experience a greater likelihood of (slower) shipments from alternative warehouses, when the nearest shipment center does not have the requested disc. Also, if there is a high demand for a particular disc, it is more likely that an infrequent renter will get priority over the frequent renters, with the latter receiving a movie further down on their list. They are also less likely to receive replacement shipments on the same day a disc is received. Similar "fair use" caveats can be found in the Terms and Conditions of leading UK companies such as LOVEFiLM. In Canada, Zip.ca switched to "Capped" plans (with additional shipping charges for rentals over the cap) in part to avoid implementing "throttling".

...
Wikipedia