Another reason for Netflix (NFLX) to hurry up and transition to a purely digital model: A potential postal rate change could cut the company's operating income per subscriber by two-thirds, say Citi analysts Mark Mahaney and Tony Wible.
The problem is apparently Netflix's return mailers, which jam automatic mail sorters and cost the Postal Service millions in manual sorting costs. To address this problem, the Postal Service is considering jacking rates, which Mahaney and Wible argue would hurt Netflix more than Blockbuster.
The analysts believe Netflix would respond by redesigning its mailers. This said, they still hate Netflix's stock and love Blockbuster's (BBI). Their specific thoughts after jump:
Citi's Mahaney and Wible:
An audit prepared by the Postal Service Office of the Inspector General (OIG) has concluded that the soft leading edge on 70% of NFLX's return mailers...get stuck during sorting and require manual processing and added about $21 mil in annual labor costs.
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