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Netflix Incurs Postal Wrath?

December 5, 2007 This item comes from Henry Blodget who says that Netflix may be incurring a backlash from the US Postmaster fed up with those leafy envelope corners jamming his automatic return sorters.

Apparently, 70% of all Netflix return mailers get jammed, causing the USPS to have to manually sort them -- adding $21 million in annual labor costs. The Post Office is considering charging a 17¢ surcharge for all returned envelopes which will escalate Netflix's costs.

According to a pair of Citibank analysts, that extra charge could cut Netflix's operating income per subscriber by two-thirds. Netflix would have to redesign its mailers as a result.

"If the USPS forges ahead with a rate increase, Netflix has more exposure to the change and is less able than Blockbuster to offset any increases with cost savings," analysts Mark Mahaney and Tony Wible report. "A price hike would exacerbate the risks we see in Netflix's business model as aggressive pricing, maturity concerns, and higher costs prevail."

Netflix has not responded to a media inquiry from VB about the report.

Posted by Ned Randolph on December 5, 2007 | Comments (0)