Postal Service Surcharge Could Slash Netflix Profit

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."

Re:well, there is a simple solution for that

[Abreu]

But then either one of these two things would happen:

1- The downloaded files would have enough DRM on them to make them unusable

2- The MPAA would shut down Netflix in about two seconds

Re:Other factors

[Seakip18]

I didn't know Netflix had a movie streaming service. It'd be pretty neat for HTPC setups. I can imagine MythTv getting a plug-in for that, simply browsing your movie list and streaming, maybe downloading it while the ethernet has an idle connection. Doesn't it already allow you to mess with your Netflix account?

Re:well, there is a simple solution for that

[TooMuchToDo]

I'm currently building a set top box to handle Netflix Watch Now so you can view it on your TV. I offered to work with them to integrate with them at no charge (my selling point is a bunch of other features). They said they weren't interested. I'm still moving forward with the project though. Let me know if you're interested as a beta tester.

Don't change the envelopes, change the deliverer

[dada21]

Maybe it is time to seriously consider revoking the monopoly provision that the USPS has in terms of being the only legal first class mail deliverer. The last time this was seriously proposed and enacted was over 150 years ago [lysanderspooner.org]. That one competitive business put the USPS to shame and lowered prices and increased quality (as competition does).

I still can't figure out why we're accepting the postal service when there are many more companies that provide better service for other forms of mail (priority, ground, freight, etc). Even the USPS uses FedEx for their International Express service.

The USPS has one big problem: it can not compete well. It's run by bureaucrats who know they'll get paid regardless of service levels or prices. UPS and FedEx woo my businesses regularly (we mail a ton of stuff), and the prices haven't changed much even with fuel surcharges and the rest. I get an amazing rate for local deliveries of packages under 8 pounds, and it all ends up landing next day just via ground delivery.

I really haven't heard one good reason why we can't let competition into the first class mail market. Yes, the Constitution provides for the Federal Government to maintain mail delivery, but it doesn't actually say they should be the only providers. I'd think the USPS would do fine for remote areas of the country, and the big boys would bring prices down, and service up, by entering the market that desperately needs help.

There's more to it than that.

[doublem]

The real story here is that the US Postal service is trying to pressure Netflix into changing their envelope design. This means Netflix is shipping so many movies that a flimsy envelope has gotten the attention of the US Postal service and is annoying the heck out of them. A sturdier envelope would no doubt be more expensive, but the odds are that Netflix will just do whichever is cheaper: Pay the extra fee or cough up the extra cash for new envelopes.

The fact that a Blockbuster shill is trying to spin this as some devastating catastrophe for Netflix is just proof of how desperate Blockbuster is, and how badly they're getting nailed by Netflix.

Re:Netflix says they will just change the envelope

[Russ Nelson]

But it creates a nice buying opportunity for Netflix stockholders ... or selling opportunity for people who had already shorted Netflix.

Re:well, there is a simple solution for that

[Anonymous Coward]

netflix supplies specially marked/labeled blank rewritable discs (limited number according to your subscription plan).
netflix provides it's own disc burning software that will only burn netflix supplied discs.
users download proprietary format disc images & burn them.

as the disc approaches its limit on rewrites, the burner would notify the user & user can request new disc(s). he will send back the worn out disc.

allow a small number of re-downloads to deal with interrupted downloads, corrupted images & hardware failures.

Netflix also says they pay more than they need

[A nonymous Coward]

Netflix also said they pay for pickup service even tho they deliver their shipments to the post office, at an estimated $100M savings to the post office. They could either demand the post office pick up as they are paid to do, or charge less for what they don't do.

Either way, this is nothing but a conflict of interest from that so-called analyst. I wonder if the SEC will investigate him for this.

Re:well, there is a simple solution for that

[QuantumRiff]

I couldn't agree more with you. Now, if Netflix partnered with Tivo, and/or with Apple on the Apple TV, I would buy one in a heartbeat. Imagine the possibilities. For some reason, I think of a movie. I click a couple of buttons, and boom, 5 minutes later (to enable plenty of buffering) i'm watching it on my big TV. No waiting a few days for the mail to arrive, no driving down to the store. Say they had a rule that you could keep them on your Tivo or Apple TV as long as you wanted, but could only have 2 or 3 downloaded at any given time. This would be SWEET!

Let's Hope Netflix Changes Envelopes

[ryanisflyboy]

I personally think the NetFlix envelopes are horrid. I've had them come in various stages of destruction to my home. Ripped edges, torn open, etc. Nearly every envelope we get looks like it was jammed in some sort of machinery... that is until about three weeks ago. It looks like the postal service changed tactics and is manually sorting NetFlix envelopes to keep their equipment running smoothly. I've had no problems with torn envelopes since then. Perhaps the postal service is simply wanting to be paid for the problems NetFlix envelopes cause.

Other than that, I'm a huge NetFlix fan and hope they can work this out. The last thing they should want to do is make their delivery channel angry. Their business depends on it. I had naively imagined the problem was solved because NetFlix was working with the USPS. Let's hope the NetFlix managers figure out they need to be nice to the postal works. You DO NOT want to make your mail man angry! TRUST ME!

Re:Netflix says they will just change the envelope

[isotactic]

They've changed their envelopes before, and they'll have no problem changing them again. What I find interesting is that the US Post Office has suffered in silence for 2 years, charging up costs in something that could easily be remedied. If post office stock was available, that's the one I would drop.

Re:Netflix says they will just change the envelope

[Shakrai]

What I find interesting is that the US Post Office has suffered in silence for 2 years

I find it unlikely that they are "suffering". In fact, it's probably in the best interests of the Post Office to work with Netflix to find a solution to this and keep them around. After all, how many new businesses are there that rely on the good ole post office as a cornerstone of their business model? Not many I'd suspect....

Re:Netflix says they will just change the envelope

[TClevenger]

And a pretty convenient one at that. They probably prefer printed, pre-sorted, barcoded identical envelopes to the kind of crap that regular people put in the mail--even if one does jam occasionally. (We get letters at my company that not only required hand-sorting, but probably handwriting experts to decode.)

Re:There's more to it than that.

[Deadstick]

So, um, how do my disks go to "returned" status within 12-24 hours after I drop them in the box? RTFP.

First, Netflix did advise me to insert disks with the barcode showing when I opened my account. Second, the system doesn't depend on it. If the barcode isn't showing, you just don't get the accelerated service.

rj