The United States Postal Service has been facing rising costs and declining mail volume for years. The USPS lost $3.8 billion last year alone, and is looking at drastic measures to stanch the bleeding. Two such solutions are raising rates and suspending Saturday delivery, neither of which would be beneficial to the USPS’ largest corporate customer, Netflix. The Big Money has published a fascinating piece discussing the dilemma Netflix is facing with the USPS.
Netflix has a network of 58 highly efficient warehouses nationwide, and its customers have come to expect disc delivery times of just a day or two. The Postal Service has voiced a desire to cease delivering mail on Saturday beginning in fiscal year 2011. An elimination of Saturday mail delivery would cut a crucial day out of Netflix’s delivery schedule and cause subscribers to have to wait at least one extra day over the weekend for their films to arrive.
In addition, the USPS is looking at raising rates yet again, which it has already done four times in the last five years. Netflix, which anticipates spending about $600 million on postage this year, needs to earn about $2 per rented DVD to maintain its profit margin. The company is already spending about $.78 in postage per rented disc, and an additional rise in postage rates would further narrow this ratio, possibly to an uncomfortable level for the company.
As mail service gets more expensive and potentially slower, could Netflix’s growing streaming service make up the difference in the company’s bottom line? Unfortunately, less than a fifth of the company’s catalog is available for streaming, and licensing fees can be steep. Despite encouraging streaming growth, Netflix plans to maintain its by-mail presence for the foreseeable future.
Do you see a gloomy future for Netflix, Insiders, or will the company be agile and adaptable enough to overcome slower and costlier mail service? Will streaming be Netflix’s saving grace, or is it destined to remain a sideshow in the company’s business model? Tell us what you think in the comments.
(via The Big Money)