Many frugal consumers swear by Netflix. It’s cheaper than cable or satellite. It’s efficient. And it’s fast.
The company netted $115.9 million last year, and the service found its way into the homes of 12.3 million subscribers nationwide. Money is rolling and all is well. But, the United States Postal Service’s continuing financial problems — it lost $3.8 billion last year — threatens to throw a ringer into Netflix’s profits, according to MSNBC.com.
The Postal Service could soon stop Saturday mail delivery. Plus, postage prices have gone up four times in the last five years. In short, it’s costing more for Netflix to do business. That, in turn, may eventually cost consumers more to have a steady stream of red envelopes arriving in the box all week long. Speaking of streaming, plenty of Netflix customers have elected to view the movies via streaming video, and while it doesn’t involve the Postal Service, it does mean costs in licensing fees, the MSNBC.com story says.
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. Alternatively, Netflix could instead elect to sacrifice affordability for speed and raise subscription prices to compensate for higher postage fees — a gambit that the company would be loath to attempt in this economy. Either way, Netflix may have to give up one of its hallmarks: bargain-basement prices or light speeds. And these reduced speeds, of course, will come in addition to the elimination of Saturday delivery.
How do you think this will affect Netflix? Would you continue to use the movie-by-mail service if the prices go up?