One More Reason Why Netflix Got it Right

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It's been nearly seven years since Netflix turned heads with its foray into video streaming, and once again we're reminded why it was a brilliant move.

The U.S. Postal Service announced another postage hike this week. Come Jan. 26 the price of a first class stamp will increase by $0.03 to $0.49. Regulators approved the temporary hike, a move to help the deficit-riddled mail system. It will stick around for at least the next two years.

Netflix got it right. The push to digital delivery may have seemed controversial at the time. Why would Netflix validate a medium where the playing field was level? Instead of concentrating on DVDs by mail where it had a unique advantage with its network of regional distribution centers, it threw its hat into a ring where tech darlings and cable providers could've flooded the market. They didn't. Netflix grew seemingly unhindered for years with its digital smorgasbord. By the time put up a feasible rival, the game was essentially over. Netflix had too deep a digital catalog and too wide a net of devices to leave its service vulnerable. 

The price of a first class stamp was just $0.39 when Netflix kicked off its streaming service with a modest catalog of 1,000 titles offered at no additional charge to its disc-based subscription. Next month's move will be the sixth increase since Netflix got into steaming. We're talking about a 26% spike in postage rates through the six hikes, something that could've crushed Netflix if it was still growing its DVD rentals. It's not. Netflix has experienced sequential net defections on its disc-based offering as movie and TV buffs flock to the instant gratification provided by its massive streaming catalog.

It's not just Netflix catching a break. Amazon was widely believed to be considering a launch of a rival disc-based service before Netflix broke into streaming. Amazon would be competing with Netflix and Blockbuster, and while one would think that the leading online retailer would've perhaps been even quicker than Netflix to jump into digital delivery -- posing a more capable challenge -- it never played out that way. Amazon waited a a few years before following Netflix into offering a digital library with unlimited access. 

Netflix will still feel a pinch with next month's postage increase. It has no intention of doing away with its DVD and Blu-ray rentals. However, given Netflix's obvious focus on digital, it's just one more reason to applaud the move that CEO Reed Hasting made 83 months ago. 

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Longtime Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends and Netflix. The Motley Fool owns shares of and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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