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 as $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, and they may need to make changes that they need to make.”