Wednesday, July 1, 2009

Is the U.S. Postal Service going the way of the buggy whip? Not if Netflix can help it

Given the major changes brought by the Internet, it’s not hard for me to imagine the U.S. Postal Service as we know it going away.
Letters and cards are being replaced by e-mail and electronic greetings. More services are promoting electronic billing to save money and go green by reducing paper use. Catalogs, magazines and direct mail could all be replaced by online versions. Packages are being delivered by private operations such as UPS and FedEx.
Meanwhile, the Postal Service is losing money hand over fist.
During fiscal year 2008, which ended Sept. 30, the U.S. Postal Service lost $2.81 billion on revenue of $74.9 billion. Its debt has been growing rapidly and at the end of last year stood at $7.2 billion.
Last year, it delivered 202.7 billion pieces of mail, down 4.5% from the prior year or 9.5 billion fewer pieces of mail.
To deal with rising costs, the Postal Service has reduced employment and closed facilities. It’s even proposed cutting one day of delivery from its current 6-day-a-week delivery schedule.
One big user of the U.S. Postal Service is online DVD rental service Netflix. The Los Gatos, Calif.-based company ships on average about 2 million DVDs a day by mail.
I asked Netflix CEO Reed Hastings recently what he thought would happen to the Postal Service.
“That’s a critical service,” he told me May 27. “In the worst case, the U.S. government will step in and give them a bailout, right? That’s the democratic way. So they’ll continue to deliver for a very long time.”
In the near-term, he’s right, of course. The federal government isn’t going to let Postal Service disappear. The Postal Service is an independent agency of the U.S. government.
But even Netflix is preparing for the transition of its business to the Web. It already offers streaming of movies and TV shows over the Internet to PCs and to TVs.
Netflix predicts that half of its business will be from Internet streaming in 2014, five years from now.

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