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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."
Netflix says the whole thing is no big deal and they will change their envelopes if necessary. I don't see the problem. Netflix doesn't seem worried.
So Netflix says they'll change the envelopes. So really it's a non-story as there's no fundamental problem shipping them if Blockbuster can do it without having a surcharge forthcoming for them too.
"Nature doesn't care how smart you are. You can still be wrong." - Richard Feynman
They already do have a digital distribution system--the mailman picks up the envelope with his fingers and drops it into my mailbox.
This guy's the limit!
Note that this "analysis" is from a guy who's been recommending Blockbuster stock over Netflix stock for a while, and that's been looking like a really dumb recommendation lately. The scenario described in the article -- where Netflix takes no action to rectify a problem that would destroy all their profits -- is unreasonable on its face.
I have seen the future, and it is inconvenient.
It should be noted that this is an analyst who had already rated Netflix a "sell" and Blockbuster a "buy", and was trying to continue to justify his ratings when he wrote this. In reality, NetFlix is very postal service friendly (they pick up their deliveries themselves, for instance, saving the postal service $100M a year), and has already redesigned their packaging a dozen times and could easily do it again if need be.
In other words, this is FUD spread by an analyst who wants to see his predictions about Netflix's stock swings come true.
E pluribus unum
Sorry about the writing. Robot fingers, you know? Cliff Steele in DOOM PATROL #23
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)
Interesting, The digital distribution that Netflix DOES have is not overly encumbered with DRM (My mum can use it with 0 problems), ran fine when I used it, and has a relatively decent selection.
Do Or Do Not, There Is No Spoon, There Is Only Zuul. Everything in the above post is probably opinion.
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.
"Live Free or Die." Don't like it? Then keep out of the USA
Agreed, They have been evolving their design for some time now
Um, don't you mean they were intelligently designing it?
***
Hey, if it costs the USPS more, maybe they could pay for it from the ill-gotten profits they derive from selling spamming services!
Apology to Ubuntu forum.
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.
Infuriate left and right
You need to look at what's probably going to happen. This FUD, if public enough, may cause Netflix stock to drop. This represents an opportunity for traders with a short position to cover by buying at a lower price. This also represents an opportunity for people who want to buy stock to do so at a lower price. The next expectation is that when the world realizes this is no big deal for Netflix, the stock will rise again and all those who bought low will have earned something on their investment.
Maybe you think that the suggestion was for the short-sellers to short some more at the lower price? That, indeed, would be an unwise move.
GreyPoopon
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Why is it I can write insightful comments but can't come up with a clever signature?
Okay, we get it!
Gamingmuseum.com: Give your 3D accelerator a rest.
Not only that, but the post office will probably prefer that solution to actually charging them the extra 17 cents to hand-sort.
Compare:
Cover the cost of extra work
vs.
Eliminate extra work
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....
I want peace on earth and goodwill toward man.
We are the United States Government! We don't do that sort of thing.
"The scenario described in the article -- where Netflix takes no action to rectify a problem that would destroy all their profits -- is unreasonable on its face."
Yeah, that would be like a brick and mortar movie rental company only trying alternatives to their antiquated business model after years of hemorrhaging money. If this guy is analyzing Blockbuster stock, he's used to a company taking no action to rectify a problem that would destroy all their profits.