Those red DVD mailers Netflix uses are a huge pain in the butt for postal workers. In a report out this week, the Postal Service says it has to manually process 70% of Netflix's DVD envelopes because they jam up the mail machines.
And here's government bureaucracy at its finest. Normally the Postal Service would charge Netflix for having a "nonmachineable" mailpiece. But this kind of envelope isn't discussed in the official "Mail Manual," so the Postal Service can't classify it as nonmachineable.
So the Postal Service has had to suck it up and hand-process Netflix envelopes. That's added $41.9 million in labor costs over the past two years and will add $61.5 million over the next two, the service estimates.
No more. The Postal Service's Inspector General wants Netflix to make its envelopes easier to process or pay a 17-cent surcharge for each one. Netflix says it will redesign its mailer to avoid the fee. A spokesman spins the issue to note that the company actually saves the post office money by going to the post office to get returned discs. Netflix is entitled to have the discs delivered because it pays for first-class postage.
Netflix mails 1.6 million DVDs a day.
Citi analysts said that if Netflix has to pay the surcharge, monthly operating income per subscriber would fall by two-thirds, from $1.05 to 35 cents. Citi reiterated its "sell" rating on Netflix.
Investors shrugged off the mini-drama yesterday. Netflix shares rose 18 cents to close at $23.93.
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