[pyre]

You're simple reasoning seems to be: "I don't know if the costs for handling physical media are cheaper than streaming low-latency high-bandwidth video over the internet, but I imagine that it is." I'm failing to see how "I imagine" == "simple reasoning." Just sayin'.

You're also making the assumption that aside from the distribution mechanisms, everything else is the same. That's far from the truth. Netflix most likely has to do separate deals with the content owners for DVD and for streaming that likely have vastly different terms.

You're also ignoring the possibility that Netflix views the DVD side of the business as a noose around their neck in negotiating deals for streaming content with the content providers, and the separation is an attempt to free up their hands.