Ethan Epstein from The Big Money has written an interesting story that explores the impact of the US Postal Service changes (rate increase, 5-day delivery) on Netflix, Delivering Movies in Slow Motion.
Higher postage costs will pose another serious problem. Postage costs have already increased four times in the past five years. To combat these cost increases, the company has simply continued to fine-tune its automation and squeeze costs out of its warehouse and distribution network. The company has also slapped on costs for premium services, such as a $1-per-month fee on Blu-Ray discs. This has eased the cost pressure somewhat, but it’s a precarious balance. As far back as 2008, Netflix said publicly that it was considering raising subscription prices. Right now, Netflix needs to collect $2 per rented DVD in order to maintain profitability and is said to spend roughly 78 cents on postage for each rented DVD.HackingNetflix interviewed Netflix CEO Reed Hastings in 2006, and Hastings addressed processing movies on Saturdays (this is long before they offered Saturday processing).
If the USPS drop Saturday delivery, will you miss it? How would you feel if Netflix has to raise prices?HN: Why don't you work on Saturdays? It seems to be such a competitive advantage for Blockbuster, and everybodys interested in getting more movies… Is it cost-prohibitive?Hastings: Prohibitive is a strong word. It’s a cost tradeoff, right, because then you can’t run a standard five day shift. So when you move to a 6th day, then you’ve got not one management team, you’ve got staggered. So the cost is not just 15% more, because you’ve got to figure out dual management, and how you’re going to infringe on people on people’s weekends and yet give them a life. So we make sure that the Monday through Friday works well, and that’s the focus.