Postal Service Surcharge Could Slash Netflix Profit 268
mikesd81 writes "Boston.com reports that Netflix Inc., the largest US mail-order movie-rental service, may suffer a cut in profits if the US Postal Service starts charging extra to manually sort the envelopes that carry its DVDs. An audit prepared by the Postal Service's Inspector General last month recommended charging one unidentified company 17 cents per envelope for labor costs. Citigroup analyst Tony Wible, who said in a note to investors Tuesday that the company is Netflix, estimated the charge might reduce profit per subscriber to $0.35 from $1.05. Wible advises investors to buy Blockbusters shares because their DVD envelopes don't have the problem (floppy edges that jam the USPS's automated sorting machinery). Netflix says the whole thing is no big deal and they will change their envelopes if necessary."
well, there is a simple solution for that (Score:4, Insightful)
I'm sure that people won't mind downloading them and it will save some $.
feel free to report any abuse on http://ntlgl.com/ [ntlgl.com]
Boiler Room (Score:2, Insightful)
A Non-Story? (Score:5, Insightful)
Re:Netflix says they will just change the envelope (Score:5, Insightful)
communication breakdown... (Score:3, Insightful)
According to the article, USPS blew $40 million manually processing Netflix mailers, but apparently didn't bother talking to Netflix and saying "hey...uhh...can you help us out here.?"
Re:well, there is a simple solution for that (Score:2, Insightful)
So DVDs work just fine for me. Netflix, change the envelopes!
42 million dollars (Score:3, Insightful)
Re:well, there is a simple solution for that (Score:5, Insightful)
I disagree with this. I would mind downloading them and I am computer guy/nerd/whatever. I don't want to sit in an uncomfortable office chair in front of a PC to watch a movie for 2-3 hours. I have already setup my TV, DVD Player, Surround Sound, etc. so I can sit on my comfy couch to watch movies. I also don't want to have to either purchase fancy speakers, etc for my PC (I don't play games, so I have no real need for them) and I don't want to have the hassle of trying to hook a PC up to my TV. Although I know all it would take would be a few cables and it isn't that hard to change the video source, I would have to have the following:
1. A PC to hook up to the TV (assuming I don't want to move mine from my desk in my home office)
2. Either a video card with an S-Video out or a TV with a VGA input
3. A way to make sure the PC was quite, but wouldn't overheat and could fit in my TV cabinet and still look nice (so my Interior Designer wife wouldn't freak out about the computer sitting on the floor next to the TV)
4. A wireless card for the PC, since I use a wired connection right now because my DSL modem/router is right by my PC and there is no cable run to where the TV is.
5. Some sort of remote for the PC, since there is no real good surface that is convenient and/or close by to use a mouse (assuming I had a wireless one) on.
Sure, I could watch it on my computer, but I just don't like it and feel that (other than here on slashdot) I am not in the minority. I also, like most people (again other than those on slashdot) don't have a media center type PC hooked up to my main living room TV. I know how to do I, and could do it, but it is a lot of hassle and expense when I can just rent/buy dvd's and put them in my already connected DVD player (that, by the way, I don't have to worry about security updates, blue screens, Linux configuration files, hard drive failures, etc.). Maybe as the media pc "appliances" become more common, this will become more of a reality, but I think right now, most people just don't want to watch a downloaded movie. (and don't even get me started on the likely DRM issues that would come with such a service)
Related to net neutrality (Score:3, Insightful)
Re:Don't change the envelopes, change the delivere (Score:3, Insightful)
I serve some churches in Alaska, and my shipping charges via FedEx are more expensive, but not that much more. I recently shipped an 8 pound package to Alaska and I believe the charge for FedEx ground was around $20. Shipping the same package to California is around $8. Considering the distance, that's not a huge price difference. Since the market sets prices based on supply and demand, it would make letters to Chicago cheap, and letters to Alaska expensive for me. That's normal, but how many people are mailing things to Alaska to begin with, compared to Chicago?
Re:Summary (Score:2, Insightful)
Compounding this, the local post offices were doing the special handling ad hoc - after enough machine jams they said "screw it - pull all of the Netflix customer returns and hand sort." On an individual post office basis, no big deal - but when summed across the organization it adds up. Probably also the reason it took so long for USPS to notice - each local post office was just dealing with it themselves and not reporting it as a systemic problem.
Re:Don't change the envelopes, change the delivere (Score:3, Insightful)
I actually do hang out with one of my UPS drivers regularly at a local saloon, and he's told me that he would have no problem at all delivering first class mail to customers he alreadys serves (duh). We receive a daily UPS and FedEx pickup, as do hundreds of my customers. For those customers, the cost to UPS is negligible in terms of warehouse-to-end costs. Sorting would introduce a cost, but UPS and FedEx have significantly better sorting equipment than the postal service does (and I know this from someone who quit USPS and moved to UPS).
I'm not saying that EVERYONE would use it, but the added advantage of the competition would bring prices down for urban areas almost immediately, and allow the companies to look into competing in suburban and exurban areas. The priority would be the competitive pressures on the USPS to do better, faster, cheaper than currently.
All our shipments are done faster through FedEx or UPS than USPS. Both companies have provided me with thermal printers, and our software allows us to look up an address, weigh a package, and print the tag in seconds. I can do a batch of 20 shipments in just a few minutes. USPS has done better by allowing third party stamp sellers (which we now use when we have to use USPS), so they have made some positive changes.
Would UPS deliver at 41 cents per letter? I'm doubtful, but we also don't really know. Our house gets, on average, about 15 pieces of mail a day. Based on weight (I just weighed my mail from today), we're talking about a overall cost of about $11.15 to the companies sending the mail. Because UPS and FedEx would work on the total grossdelivery cost (not the individual net sending cost), I would believe that $11.15 is more than enough for them to sort and deliver letters to me daily. On my slowest days we receive one ground shipment that costs the shipper $6.00 or so. $11.15 is more gross income, but more work, so I'm sure they make more on the $6 delivery than on 15 deliveries totaling $11.15, but again, it depends on if their market forecasts can see a profit.
I'd think they could. The current system of USPS is huge, but I see new UPS Stores and FedEx Kinkos stores opening up regularly all around me. That means that they've built a decent infrastructure, and can likely cover many suburban areas already (my town is small, and I believe we have 20 FedEx depots of various sorts within a 20 minute drive of me).
Re:well, there is a simple solution for that (Score:3, Insightful)
But they are adding new all the time.
And also, it's not quite as DRM-light as you make it sound. You have to have the newest version of Media Player and, if you already have that, you still have to download the newest DRM update. It can be a bit of a PITA to get working the first time, requiring a restart and all.
But after that, it does work very reliably and actually quite well.
The quality is still only so-so and nowhere near DVD quality. I think their encoding process going from DVD->Streamable needs some work.
But the point is that this service is here. Today. And it's trivial for me to hook my laptop to my TV and get IP VOD with decent audio and video quality. And that it's being improved every month. Netflix clearly (and smartly) sees this as THE future of its business model. And considering that my cable company charges $3 per VOD release and Netflix gives you 17 free hours a month (on the $17 plan. You'd get 40 free hours on their $40 plan), it's really a pretty decent system.
Just remove the monopoly, and regulate the market (Score:4, Insightful)
There's a simple answer to that though; instead of giving the USPS a monopoly, require all mail carriers to provide fixed-fee service to the entire country. Don't limit how the carrier does this; a carrier concentrating on urban service could (for example) pay the USPS to handle remote areas, and eat the loss whenever it leaves its own delivery area; if it's got a process advantage over the USPS (such as better sorting systems), it may not make a loss whenever it does have to pay the USPS to fill in coverage gaps. To protect the USPS from abuse, once you're a mail carrier, you may not make use of another carrier's fixed-fee services (so you'd need to negotiate a suitable commercial contract with the USPS to fill in your coverage gaps).
If postal services are a natural monopoly, the USPS ends up as the only carrier. If there's room for someone to undercut the USPS, they will do so, and make a profit in the process. So long as the USPS isn't stupid enough to set its rates below the level where they can continue to make a profit on every delivery, it survives to provide fill-in coverage.
Put another way; the USPS is a monopoly because we want reliable postal services at a fixed rate, anywhere in the country. If we regulate for the outcome we want, and let private enterprise do as it wishes within those regulations (with business-destroying penalties for flouting them), we should get the results we want for the minimum price possible. If that means a USPS monopoly, it's clear that the monopoly is a consequence of our desire; if it means competing carriers, then the monopoly was an inefficient way to get what we wanted.
Re:Netflix says they will just change the envelope (Score:5, Insightful)
Compare:
Cover the cost of extra work
vs.
Eliminate extra work
You forgot to do one thing (Score:1, Insightful)
Re:There's more to it than that. = Subsidizing (Score:4, Insightful)
They can be rather slippery and are often difficult to keep a good grip on within a large stack of sorted mail.
I have no doubt that similar US Postal Workers have had identical frustrations not to mention that the thicknesses of the disks really add up and complicate the holding the 2 to 3 piles of hand-held mail when preforming dismount-delivery (on foot).
As a postal worker, you come realize this 5" square (and thick for its area) Netflix-style DVD envelope is being delivered by you many dozens of times per day (or more) and the disks *are* slipping out of the letter stack more easily than other types of mail when delivering mail 'in the field'.
You also realize that this Netflix-style mailer is NOT bringing the First-Class postage rate (but you spend MORE of your time handling it than the premium First-Class letters).. They do not even pay second-class or media-mail rates but a pre-sorted postage rate. Also, in all likelihood, the Netflix-style DVD mailer is causing just as much trouble for the automated sorting machines in the postal distribution centers. It also is not difficult to imagine that these odd-shaped and slippery (for mail) DVD mailers therefore must be handled by 3 to 4 more sets of human hands to get accurately delivered compared to the handling and delivery for standard premium first-class postage envelopes. Netflix, et al are probably paying at least half-as much to have them delivered as they would cost if delivered first-class (if even that). Even my credit card-statement comes First-Class!
If the profitable business models for these DVD rental/mailing companies is dependent on US Government (USPS) mailing subsidies, I suggest shareholders beware.
Individuals in the US, mailing their personal letters are *required* (most of the time) to use First-Class postage stamps (or equivalent). These same individuals are experiencing increasingly HIGHER POSTAGE RATES because, in large part, they too are subsidizing the added expenses of delivering Netflix-style mailers and other bulk non First-Class mail.)
Ask your postal worker what they deliver more of, First-Class mail, or "bulk mail"... you will see in their expressions the real answer to why we see the frequent postage rate hikes.
Shape and size of mail DOES have much to do with the *costs* and efficiencies in the delivering of the US Mail. I only wish the prices for mailing were adjusted accordingly (as we would all have MUCH LESS junk mail). -Z
Re:well, there is a simple solution for that (Score:4, Insightful)
A) They say they are working on Linux and Mac support so they are either lying or telling the truth. Assuming they are telling the truth then what's your beef? The fact that the OS with >85% market-share was the first one they released the product for? Would you have focused your R&D dollars on releasing it for Linux or Mac first in their shoes?
B) How is it the fault of Netflix if the studios/copyright holders refuse them a license for digital distribution UNLESS the resulting distribution medium imposes DRM? Blame the studios and not Netflix.
Re:well, there is a simple solution for that (Score:4, Insightful)