Netflix Inc., the largest US mail-order movie-rental service, may suufer a cut in profit if the US Postal Service starts charging extra to manually sort the envelopes that carry its DVDs, a Citigroup Inc. analyst said.
An audit prepared by the Postal Service's Inspector General last month recommended charging one unidentified company 17 cents per envelope for labor costs. Citigroup analyst Tony Wible, who said in a note to investors Tuesday that the company is Netflix, estimated the charge might reduce profit per subscriber to 35 cents from $1.05.
Mailers from Blockbuster Inc., the world's largest video-rental chain, aren't handled the same way, Wible said. He advises investors to buy Blockbuster shares. A Blockbuster spokesman didn't respond to a phone message seeking comment.
Netflix saves the postal service $100 million annually because it pays the first-class postage rate both ways even though the company picks up returned mail at the post office, Netflix spokesman Steve Swasey said. Netflix ships about 1.6 million DVDs a day.
"It's highly unlikely we would be assessed any surcharges, because we would change the mailer if required," Swasey said.
Netflix shares rose 18 cents to $23.93 in Nasdaq Stock Market trading.
The Inspector General contends that 70 percent of Netflix's envelopes are handled manually because a "floppy leading edge" on the red mailers tends to jam equipment during automated processing, the report said. The manual processing cost $41.9 million during the past two years and will cost $61.5 million over the next two years.