Blockbuster has had a rough year, posting a loss last quarter of $35 million and closing over 500 stores in the past year, but a new report out by the US Office of the Inspector General of the US Postal Service may put heat on chief rival Netflix. According to an audit by the OIG, the type of return mailers that Netflix uses jam automatic mail sorters and cost the post office about $21 million per year in manual sorting costs, reports Wired Epicenter.
The result is that the OIG has recommended that the USPS impose a 17 cent surcharge on each mailer. This, according to Citi analysts Mark Mahaney and Tony Wible, would cut Netflix’s operating income per subscriber by 67%. “If [Netflix] has to bear the full brunt of this increase (without other cost offsets), monthly operating income per paying subscriber would fall 67% from $1.05 to $0.35,” wrote the analysts. Blockbuster’s mailers, on the other hand, are not prone to the autosort jamming problem, said Wible and Mahaney.
Analysts expect that Netflix will likely redesign their mailer to preempt any potential rate hike. Redesigning their mailers is something that that company has done numerous times over the past 8 years, and is a likely solution to the potential problem with the postal service.
Even so, Mahaney and Wible are unimpressed with the business, writing, “a price hike would exacerbate the risks we see in Netflix’s business model as aggressive pricing, maturity concerns, and higher costs prevail.” They reiterated their “sell” rating on the stock and gave Blockbuster a “buy.”
