Originally Posted by Wendell R. Breland
Plasmaman, IMO it will not do any good to argue with this person. We have posted pictures (Netflix and Blockbuster) showing that they are using First Class BRM. Links and quotes have been posted for USPS information.
Apparently the person belives Netflix is stupid enough to pay full 1 piece First Class mail rates.
I simply believe in facts and information. Ultimately, ignorance serves no one.
Posting info from the Post Office does not tell us what Netflix pays in shipping. Reading how Netflix specifically cites First Class postage rates and how it impacts their business is key. So is data analysis.
The Post Office has reported that they ship approximately 2 million DVDs out from Netflix a day.
Another customer success highlighted during the session was Netflix, which mails about 2 million DVDs each day — exclusively with the Postal Service.
Netflix ships First Class mail. Their CEO has repeatedly stated that 1/3 of subscriber revenue goes to the post office.
Hastings: No. In streaming, anyone can do the mechanics of it. It'd be a very competitive market. The difference is in the DVD world, of all our revenue -- a third of it goes to studios, a third of it goes to the post office and a third is for us. The gross margin is about 33%. In streaming, two-thirds will go to the studio, the post office will get none, and we'll get a third.
Let's assume that Netflix ships 261 days a year (Monday-Friday) and not factor in holidays.
2,000,000 DVDs sent out a day. Assume the same number (on average) are returned a day. Let's use the roundtrip rate of $.80 (that factors in their discount for bundling the outbound discs).
2,000,000 * .8 = $1,600,000 USPS shipping costs per day.
$1,600,000 per day * 261 days = $417,600,000 in USPS shipping costs per year.
Netflix's 2008 Fiscal Year revenue was 1.364 billion.
$417.6 million / 1.364 billion = 30.6%
That is just about the 1/3 number that Netflix CEO Reed Hastings has repeated says goes to the Post Office (as a percentage of revenue).
This clearly proves that the $.80 roundtrip rate is very close to their actual shipping costs. If you have a data model that counters this, please provide it.