Mail rates are going up this morning, but don't go postal. As long as you're sticking those new $0.41 stamps on your first-class mail, you're all set.
The same can't be said for companies that depend on first-class postage to reach you. Yes, even the mass mailers who rely on sorted mail discounts will feel the pinch. You won't shed a tear for junk mail costs going up, but be on the lookout for your monthly utility bills and credit card statements to promote the "convenient" and "eco-friendly" merits of online statements. It's all true, but I wonder how many companies will be frank about how it's really a way for them to hack away at their own operating overhead.
Seeing red in the mail
Not all companies have the luxury of promoting paperless solutions. Netflix (NASDAQ:NFLX) and Blockbuster (NASDAQ:BBI) are bankrolling the postage on roundtrip DVD rental deliveries. This isn't a matter of a single monthly mailing. The average Netflix customer, on its most popular plan that allows for unlimited rentals with three flicks out at any given time, goes through 5-6 films a month. Today's rate hike will make the typical Netflix subscriber $0.20 to $0.24 more expensive to service.
In an ideal world, Netflix could bump the price of that $17.99-a-month plan by a quarter to offset the bump in mailing costs. Customers would understand. If they're paying more for corn at the supermarket because of ethanol demand or getting hit with fuel surcharges at the airport, a quarter is a small price to pay to keep the red mailers coming.
Oh, but we're not living in an ideal world. Netflix is dealing with a pesky rival in Blockbuster's Total Access plan. It's already feeling the pain. Last month it lowered its year-end subscriber targets. In short, it will land fewer net subscribers this year than it did in 2006. The last time the company felt competitive pressure -- a couple of years ago when it feared that Amazon.com (NASDAQ:AMZN) would dive in -- Netflix responded by aggressively lowering prices.
It worked. It scared away Amazon. It also scared away shareholders. That makes a price cut unlikely for Netflix, though a rate hike would seem out of the question unless Blockbuster blinks first. Yes, that could happen. Blockbuster posted a wider quarterly loss earlier this month, with the costly Total Access program obliterating margins.
Blockbuster will have to raise its subscription fees eventually. You can't win a staring contest with bloodshot eyes. However, look for Blockbuster to hold out for as long as possible, knowing that every quarter that it can clench the leather strap with its teeth to dull the pain means another body blow for Netflix.
One winner that's actually a loser
Will the new rates inspire some market-beaters? Probably. This is the kind of move that finds small companies scrambling to install Pitney Bowes machines instead of having to run out to the post office to order $0.02 and $0.41 stamps.
Stamps.com (NASDAQ:STMP) may very well get an uptick in traffic this week, though I wouldn't be a buyer of the stock here. Stamps.com has been doing steady business with its PC Postage business. The allure of on-demand stamp printing from a personal computer is obvious to folks who don't have time to wait for a USPS online order or the desire to hit the likely long lines at the post office today.
However, the real growth driver at Stamps.com has been PhotoStamps. Customers are paying as much as $18.99 for a sheet of 20 stamps that are customized with their own uploaded photographs. Sure, that's more than the $8.20 you'd be set back with conventional postage, but one can't underestimate the power of vanity when it comes to sending out party invitations and holiday greetings.
Stamps.com is so confident that it did what Netflix can't do: move off the $17.99 price point with the buck hike earlier this year in anticipation of the new postal rate hike.
So why am I not jumping all over this like a stamp collector on an inverted Jenny? And no, I'm not talking dirty -- really! Well, I recently got an email from Zazzle. The fast-growing on-demand printer has been making its mark with customized T-shirts and mugs and has now gotten into the photographic postage game. It's not just sticking to the original $17.99 price point at Stamps.com. Zazzle is promoting a $12.99 introductory offer, too.
This comes at a time when the PhotoStamps product is vulnerable. The sheets suffered an 18% decline in sales in Stamps.com's latest quarter over last year's March quarter. Holiday sales may have soared 35% higher the quarter before that, but it does not bode well for the company if it heads into the 2007 holiday season against a price-slashing competitor like Zazzle.
My $0.02 stamp's worth
Like stamps, opportunities can be licked. Stamps.com will still be able to market to an audience that isn't aware of cheaper alternatives. Even Netflix and Blockbuster are trying. Netflix is promoting its online streaming service. No doubt it will soon be pitched as "convenient" and "eco-friendly." Blockbuster is encouraging customers to return mailed rentals to stores to get an immediate bonus rental.
Netflix and Blockbuster continue to send out fresh DVDs from their regional distribution centers as they receive them. This doesn't make the new offerings any less valuable. Subscribers streaming flicks through the Internet or checking out additional titles at the store level may find less time to go through the mailed DVDs. That could go a long way to offsetting this week's postage hike.
If not, well, it'll be up to the shareowners to go postal if income statements are pinched.
Netflix and Amazon are Motley Fool Stock Advisor recommendations. Pitney Bowes is a Motley Fool Income Investor pick. You don't need a metered mail device to find out why. Just sign up for a 30-day trial newsletter subscription.
Longtime Fool contributor Rick Munarriz has never sent out PhotoStamps, though he has been a subscriber and shareholder in Netflix since 2002. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.
