It was never called "DVDs-through-the-mail-that-you-pick-over-the-Netflix", it was always called "Netflix." I think their idea was always VOD, with DVDs a necessary evil to get marketshare.

I also think that Netflix knew that streaming would be a bigger portion of the pie sooner than the distributors or studios did, and got good pricing because of it. However, streaming is here and everybody knows it and Netflix is getting squeezed. This is documented; I can dig it out if need be.

Netflix is perfectly willing to burn all the "DVD only" customers they have - after all, that market belongs to Redbox (which gave enormous concessions to the studios to get it) and 80% of Netflix's revenue is back-catalogue (which is much cheaper to get VOD licensing for). Their general approach was to prune off their deadwood (Qwickster was a dead man walking) and focus on the deals that would increase their wealth and marketshare - and nobody is going to care about physical media in 3 years anyway. However, that 1 DVD was a security blanket for everybody who had found something that wasn't streaming and wanted it anyway - so things didn't go as planned:

- Reed Hastings and crew thought that they'd be able to transition everyone to streaming without any real worry, because people with the 1 DVD plan rarely use it

- Reed Hastings' customers were pissed off that they were suddenly being charged six bucks for their security blanket, which made them question their relationship with Netflix and QQ in a rage

Netflix doesn't understand that "rental" also implies "ownership" and having a physical token, even if it is a Season 1 Breaking Bad disc that's been sitting on your DVD player for six weeks, really f'ing matters. And maybe it won't in 2014, but we aren't there yet.

And since Netflix doesn't understand where their trouble comes from, they aren't able to resolve their issues in a non-clumsy fashion.