Will Saturday mail cuts impact Netflix?
Ethan Epstein at Post Co. sibling site BigMoney.com wonders how plans to cut Saturday mail delivery will impact movie rental company Netflix:
Netflix is in many ways the epitome of the 21st century company: It's based in Silicon Valley, it sells its services exclusively online, and it employs a hip bit of Web-speak in its name. But even as it boasts many of the trappings of a New Economy juggernaut, Netflix is still almost entirely reliant on that most 19th century of institutions: the United States Postal Service. Indeed, Netflix is the Postal Service’s biggest corporate customer.
And sadly for Netflix, its big partner is also in the red—the Postal Service lost $3.8 billion last year. In an effort to stop the bleeding, on Wednesday, the USPS took the first step toward eliminating Saturday mail delivery—it asked the Postal Regulatory Commission for an opinion on the matter. (Congress still has to approve the change.) The USPS says it hopes to implement the change in fiscal year 2011. In addition to eliminating Saturday delivery, the Postal Service has also said that it wants to raise postage fees. If these changes are implemented, Netflix's finely tuned business model could suffer a serious blow.
In total, Netflix estimates that it will spend $600 million on postage in 2010. A rise in postal rates will obviously skew this formula, and generate pressure on the bottom line. If Netflix can’t mitigate these higher costs through yet more automation, the company will face two options. It could slow down turnaround time, and therefore reduce the number of DVDs that it sends each month: That is, it could sacrifice speed for affordability.
Read Ethan's whole piece here.
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