Netflix has a larger market base (far more people watch TV and movies than read books, particularly at a level high enough to justify a subscription) and a market base that is far less likely to already be aware of the free alternative (most serious readers of the sort that go through that amount of books are already aware of their local libraries, whereas serious movie/TV watchers are less likely to be so).

Additionally, modern Netflix is a streaming company, and even DVD Netflix was sending the materials directly to your house, which is a differentiator versus the library, whose materials need to be picked up. There's a convenience factor as an incentive to pay. Library streaming exists, but it's awful - very limited library and very limited watches - versus Netflix where once you sub you can watch as much as you want.