Netflix, Inc.’s (NASDAQ: NFLX) continues to be the dominant DVD rental company in the U.S. when it comes to rentals by mail, but the U.S. Post Office is probably not happy about it. Why? The adhesive on Netflix’s return mailers keeps jamming its automated mail sorting machines, causing costly manual sorting of the Netflix envelopes.

That sounds like a small problem, but considering Netflix has seven million customers and is sending and receiving hundreds of thousands of DVDs every month, the need to manually sort all those special DVD envelopes is costing the USPS an estimated $21 million in labor costs per year. Don’t think for a moment that the federal mail agency is not about to place a surcharge on every Netflix mailer sent through its national network.

Want numbers? Citigroup analyst Tony Wible estimates

that a surcharge could change the monthly operating income per Netflix subscriber from an existing $1.05 to $0.35. That’s a 66% drop based on faulty mailers alone. Competitor Blockbuster, Inc. (NYSE: BBI) studied that issue before it became one for them, so that company is not experiencing a similar problem.

It’s tough to assume that a simple adhesive is creating such a mess for Netflix, but it is. Going back to the envelope drawing board may be the only solution (from what I have seen, Netflix envelopes have not changed in years). Until next, that problem will be hanging by the company’s head, and it’s financial prospects in the next few quarters and beyond.

Original post by Brian White

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