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Netflix to U.S. Post: Drop dead

July 12, 2011: 6:06 PM ET

Netflix's new pricing strategy could hurt some consumers, but it's a definite blow to the U.S. Postal Service.

Netflix (NFLX) today declared war on DVDs, pledging to relegate them to the same dustbin that is occupied by VHS and Betamax tapes.

Okay, not exactly, but the company did today tell its 24 million subscribers that they no longer can buy both the DVD-by-mail and Internet streaming services for just $10 per month. Also gone is free unlimited streaming for unlimited DVD-only users. Users can purchase each plan separately, but for 60% more than it currently costs.

Peter Kafka writes:

Netflix explains the rationale for the price hike in a blog post, but the short version is that it would like its DVD customers to move to the Web, or pay up. Doing so helps it cut down on discs costs and/or generate more money to help buy digital titles, which are only going to get more expensive.

Wall Street reacted positively to the news, with Netflix shares up 53 cents to a staggering $291.27 per share. The technorati seem a bit more circumspect, particularly given that Netflix is known for having a much deeper DVD library than streaming library.

But for real grievance, you need to look to the U.S. Postal Service. It won't publicly complain, of course, but Netflix CEO Reed Hastings said last October that his company spent between $500 million and $600 million on DVD postage. That's approximately 20% of all revenue that the Postal Service booked from first-class "flats" last year, and 1.7% of all first-class mail revenue.

Moreover, Netflix increased the number of DVDs mailed to subscribers last year by 9.7%. Had it remained on that pace, it would have been nearing the $660 million mark for 2011.

But now one has to assume that Netflix will soon see a decrease in DVD subscribers, thus boosting its own bottom line and taking a bite out of the Postal Service. Get ready for stamps to cost a little bit more...

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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