Saturday mail cut is good news for Netflix

  • By Michael Liedtke Associated Press
  • Wednesday, February 6, 2013 10:20pm
  • Business

SAN FRANCISCO — Netflix won’t miss Saturday mail delivery, even though the weekend service helped keep its DVD-by-mail subscribers happy.

The U.S. Postal Service’s planned shift to five days of home delivery a week instead of six may even make Netflix Inc. slightly more profitable by lowering the costs for sending out its familiar red envelopes with DVDs. That’s because subscribers may be able to watch fewer DVDs for the same monthly price.

That’s why investors reacted positively to Wednesday’s announcement that the U.S. Postal Service intends to stop Saturday home delivery beginning Aug. 10. Netflix’s stock gained $10.02, or nearly 6 percent, to close Wednesday at $184.41. Earlier in the session, the stock hit a new 16-month high of $185.14.

Under the plan, mail would be delivered to homes and businesses only from Monday through Friday, but it would still be delivered to post office boxes on Saturdays. The plan, designed to save about $2 billion a year, could face a challenge from Congress.

Investors’ reaction might have been different if Saturday mail service had been eliminated three years ago, when the idea was first broached.

Back then, mailing DVDs was still Netflix’s main business. It was so important that Netflix grew into the postal service’s biggest customer. When the total number of Netflix’s subscribers receiving DVDs peaked at 24.6 million during the summer of 2011, the company was spending about $600 million annually for discs to make the round trip between customers’ homes and dozens of distribution centers around the U.S.

Netflix began this year with just 8.2 million DVD subscribers, and the number is expected to keep dwindling as the instant gratification of being able to watch video over the Internet makes the notion of watching movies and TV shows on DVDs seem antiquated. By contrast, Netflix had 27.1 million Internet video subscribers in the U.S. at the start of the year. It doesn’t even offer the DVD option in Canada, Latin America, the United Kingdom and other markets it’s expanding to.

Janney Montgomery Scott analyst Tony Wible estimates that Netflix will spend about $300 million on postal expenses this year and perhaps as little as $200 million next year, depending how many more DVD subscribers cancel their service. The company no longer discloses its postal expenses.

The DVD-by-mail service began to shrink in mid-2011 when Netflix unbundled it from its rapidly growing service for streaming video to TVs and other devices with high-speed Internet connections. The change required Netflix customers to pay separate monthly fees if they wanted both Internet video and DVDs through the mail, which offered the latest theatrical releases more quickly.

The switch raised Netflix’s prices by as much as 60 percent for those who wanted both options, much to the anger of hundreds of thousands of subscribers who canceled. Most customers, though, decided to stick with Internet video and dropped DVDs.

If Saturday mail delivery ends as planned this summer, even more subscribers may opt for a streaming-only plan.

Wedbush Securities analyst Michael Pachter doubts most DVD subscribers will care about the loss of Saturday delivery. The customers most likely to be irked are ones who typically watch eight to 10 DVDs per month, because four or five fewer days of mail delivery each month will make it more difficult to get as many discs. “Those guys cost them money, so if they quit, it won’t hurt them,” Pachter said.

Netflix makes more money when its subscribers watch fewer DVDs in a month because its expenses go down while the monthly fee remains unchanged. The DVD plans start at $8, as do the ones for Internet streaming.

Even though Netflix has fewer DVD subscribers, that side of the business is still slightly more profitable than the streaming service. That’s mainly because Netflix’s licensing fees for Internet video are higher than its DVD expenses.

Netflix, which is based in Los Gatos, Calif., had little to say about Wednesday’s developments, other than to say it’s “in favor of a healthy postal service.”

Netflix CEO Reed Hastings was more forthcoming during an April 2010 conference call with analysts. If Netflix were to lose Saturday home delivery before the company had more time to expand its streaming service, “it’s not a good thing for us,” Hastings said then. “We hope they hold off as long as possible, but we’re also cognizant that the total health of the USPS is at stake.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.