Ultimately, I'm afraid this is due to the difference in laws between owning a physical copy of a disk and having the rights to redistribute digital media. Once Netflix had a DVD of some old movie, it was effectively free for them to hold onto it forever, and older DVDs could be siphoned up from a zillion sources for pennies. Netflix would have to pay for new movies, but the maximum they could be charged would be retail price, and once they had the copies, they'd have them forever. Their catalog would only grow.
Digital redistribution, however, severely hampers them. They can't "buy" copies of movies anymore. Instead, they must pay for the right to stream a movie for a certain amount of time to a certain number of users.
It's an unfortunate outcome, and it's all but guaranteed by the way copyright law works. If there were a law change to allow the digital equivalent of "owning one copy" or, say, allowing the owner of a DVD to stream its contents to exactly 1 recipient over the Internet per DVD owned, I think Netflix's catalog would be an order of magnitude larger.
Digital redistribution, however, severely hampers them. They can't "buy" copies of movies anymore. Instead, they must pay for the right to stream a movie for a certain amount of time to a certain number of users.
It's an unfortunate outcome, and it's all but guaranteed by the way copyright law works. If there were a law change to allow the digital equivalent of "owning one copy" or, say, allowing the owner of a DVD to stream its contents to exactly 1 recipient over the Internet per DVD owned, I think Netflix's catalog would be an order of magnitude larger.