DVD-by-mail rentals have been delighting Netflix
Alongside this week's rousing earnings report, Netflix CEO Reed Hastings told analysts that the company is testing the uncharted waters of shipping out movies six days a week. Saturdays and Sundays have been postal holidays for Netflix envelope stuffers since time immemorial, so this is breaking new ground in the name of customer satisfaction.
Expanding its hours of operation by 20% would presumably raise shipping costs by a fair bit. A gross margin that expanded from 33.8% in the 2007 holiday quarter to 35.2% this time around tells me that Netflix can afford that. Besides, the online streaming option seems to save the company shipping costs on the DVDs we're not watching.
And if the all-online program makes a few customers drop their subscription down to fewer movies per month, that's probably okay with Hastings -- there are volume discounts for the consumer in the mailing plans, so margins should be higher in the entry-level packages.
Of course, we learn of these potential shipping improvements the same week that postmaster general Jack Potter asks permission to move to a five-day postal work week. Faced with dropping mail volumes and sagging under the weight of pension funds, the postal service is in the same boat as General Motors
So, just when Netflix gets ready to add Saturdays to the working week, we all might lose Tuesday or Thursday deliveries. Oh, the irony.
Summa summarum, Netflix will still come out looking good. The good-faith effort of improving the service will likely balance out the zero-sum effect in customers' minds because it's hardly Netflix' fault that the post office is in trouble.
The winners, the losers, and the also-rans
Accelerating the move into a fully digital world can only be good for the frontrunners in the new era of entertainment delivery. Long-term winners would include Netflix, TiVo
Left eating dust are mom-and-pop video stores, big-box retailers without a transition plan into the downloading age, and a rash of lesser lights who are still hoping to carve out a niche in the new virtual reality. Blockbuster
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Fool contributor Anders Bylund owns shares in Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.