Netflix Supports Proposed Postal Rate Hike

7 Jul, 2010 By: Erik Gruenwedel

A day after the U.S. Postal Service formally requested 7% to 8% fee increases for mailing DVDs, books and magazines, among other proposals, one of its largest customers — Netflix — has surprisingly come out in favor of the proposed rate hike.

The postal service July 6 said it wants to increase the cost of a first-class stamp to 46 cents from 44 cents. The nation’s mail carrier spends more than $20 million annually hand-sorting DVD mailers, with costs expected to increase to $30 million by 2009, according to a published report.

The rate hikes, which would go into effect in 2011 if approved by the postal commission, would generate an estimated $2.3 billion in revenue. In March, the postal service proposed eliminating Saturday delivery as it grapples with a projected $7 billion deficit in 2011.

The service manually sorts disc mailers for Netflix, Blockbuster Express, GameFly and other by-mail subscription services since sorting machines can’t process them.

"Because these mail pieces are not machine-able, the postal service pays significant additional labor costs to manually process them," said Tammy Whitcomb, the deputy assistant inspector general for revenue and systems, in a recent report by The Washington Times.

The Los Gatos, Calif.-based online DVD rental pioneer, which spends more than $600 million annually on two-way first-class mailers, said it supports measures aimed at helping the postal service narrow budget shortfalls.

“We are supporting the postal service with all of its proposed changes, not just one in a vacuum,” said Netflix spokesperson Steve Swasey. “We believe a stronger postal service with affordable rates is better than a weakened service. They needed to make some changes.”

It wasn’t immediately clear what impact a 7% rate hike would have on Netflix’s bottom line.

Last month before a Senate House Committee hearing, Andrew Rendich, chief service and DVD operations officer with Netflix, said Netflix would not support rate hikes aimed at buttressing the postal service’s retiree health benefits, which he said represent $5.5 billion to $5.8 billion in annual obligations and dwarf nearly all other of the service’s day-to-day operating costs.

“Allowing the postal service to restructure retiree health benefit payments under a ‘pay-as-you-go’ method, comparable to what is used in by the rest of the government and the private sector, would improve the service’s cash flow and likely reduce pressure to raise rates above what is necessary,” Rendich said.