I read an interesting article about NetFlix and the cost of postage. Let’s say, I subscribe to its 3 DVD a time package, which is about $18 per month. Assume I am a cheap movie fanatic, I watch all the movies as soon as they arrive and return as soon as I finish. So, my "turn-over’" is 2 or 3 times per week. So, the postage cost of a hard-core movie viewer, the cost is probably 2.5 (a nice round number between 2 and 3 ), * 3 (#of DVDs) * 4 (# of weeks in a month) * $.30 (average of assumed postage cost) * 2 (round trip to the warehouse), which is $18.00.
That leaves little room for operation, payroll, marketing and a decent profit. Again, we are talking about profit margin for worst customers here.
Can NetFlix do better? Of course. For one, once a DVD is out of the warehouse, what is the point of having it back in the warehouse to be shipped out again? I think this will be a great application for social network web applications, besides their usual dating and job appeals. Imagine LinkedIn partner with netflix and the surprise to receive a DVD from a friend.
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