Today Netflix announced a plan change to their incredibly popular movie rental service, splitting the ability to watch instantly and physical DVD rentals into two different packages. While the initial reaction has been negative (and understandably so, adding around $5 to a typical user’s monthy bill) I do believe they know what they are doing. Hear me out.

During the HD-DVD vs. BluRay debate (actually, most referred to it as a “war” and rightly so. There were some pretty nefarious things that went on) I predicted that whatever format won, they wouldn’t really win. My understanding of where digital entertainment was going led me to believe that physical media (you know, DVDs) would eventually have to take a back seat to digital distribution methods. iTunes, Amazon Video On Demand and of course, the all-mighty Netflix have all realized that, in the age of broadband internet, digital distribution is king. Well, it appears I was probably right.

Netflix’s move today was a step towards better digital distribution and moving the physical distribution to the back seat. If you read the article you will see that Netflix is managing DVDs with a separate team, focusing the core of Netflix at the streaming Watch Instantly service.

Moving forward I see digital distribution gaining momentum and I believe Netflix sees it too. Moving forward I think Netflix will be fighting hard for more movies in the Watch Instantly, hence the financial and structural decision made today. I just hope I’m right.

As for me, like most people it seems, I’ll probably drop the DVD service. In our house we stream 95% of our content anyway. And I’ll be looking expectantly for lots of additional content in the Watch Instantly arena.

Thanks Meulfire for the tip (via Consumerist)