We Are Not Netflix

At least a dozen times since Letterjoy started, I’ve been asked “Why are you more expensive than Netflix?”. On Twitter, in chat, and via email, a few individuals have been outraged that we charge more than the ubiquitous video giant.

Today, at the risk of sounding obnoxious, I’m going to answer the question. Hopefully it wasn’t rhetorical.

First: Why is this question being asked?

Monthly services aren’t new. Odds are, every month you pay your electric bill and your water bill. You probably also pay a cable and a phone bill, as well as an insurance bill, and maybe a newspaper or magazine. In the old days, families used to buy a a subscription for milk delivery. Most of us pay those bills, but nobody has ever asked “Why aren’t you priced like cable?”

My theory as to the origin of this question is that Netflix is the first widespread subscription service to make price a core element of the brand/advertising. For many of the 58 million US subscribers to Netflix, their first exposure to the brand (at least once they transitioned from DVDs to streaming) probably involved hearing the price….just $7.99 a month (this has since been raised).

Because Netflix was the first widespread service to focus its messaging on a single price, this price has become a cultural affordance - a shorthand for what an entertainment subscription should cost.

A Netflix ad from 2011

A Netflix ad from 2011

So, Michael, why is Letterjoy not Netflix?

Now, to the question at hand. There are a few core reasons why we are not Netflix, and we are never going to be able to match even their raised prices.

  1. We are a niche business

I love historical letters, and so do many of our members, but it’s not quite as widespread a passion as “movies” or “TV shows”. Netflix has hundreds of millions of paying customers, and that allows them to benefit from economies of scale. Every business has fixed costs (i.e the cost of incorporation, the cost of tax preparation, the cost of doing historical research or paying a designer). Niche businesses have much smaller audiences, meaning that those costs need to be defrayed over a much smaller set of customers.

Hypothetical example: If Netflix spends $150k to acquire the syndication rights to a TV show for a one year period in which they have 150 million customers, they are paying $0.001 per customer to make that show available to their customers. If we did the same for a collection with 3,000 customers, we would be paying $50 per customer.

2. Netflix is (mostly) a digital aggregator

Netflix has found critical acclaim for producing a few fantastic TV shows in recent years, but at its heart it’s an “aggregator”. Netflix pays for non-exclusive licenses to distribute digital content that someone else made. More often than not, they are purchasing rights to that content well after it was initially created, distributed, and monetized.

For the massive media companies Netflix contracts with, picking up a few extra dollars here and there for TV shows produced long ago is a no-brainer, so they sell Netflix access to vast content catalogues for small upfront fees.

Where Netflix is an aggregator, we are a curator. Billions of letters have been written over the last six centuries, but only a few of them are compelling, and even those are only compelling when paired with related letters and relevent context.

We sort through the noise to find interesting stories, and let me say, there is a lot of noise.

The letters we share are spread between hundreds of libraries, archives, and private collections. Some are private, and we only learn of through the discovery of a 109-year-old out-of-print book.

Here’s a staggering state: The Smithsonian’s Postal Museum has a collection of about 8 million items, but only 6% of those are actually available online in some form. This is the Smithsonian, certainly one of the greatest collections of museums in the world.

(Side note: This is a problem we are working to solve. We’re developing new software based on computer vision technology to help small museums quickly digitize their collection).

3. Netflix is a Digital Business.

Netflix is a software company. When they make a movie available, no human labor is required to deliver it from their servers to your laptop. Nobody knocks on your door from Netflix to say that your movie has arrived. It

Their development costs are fixed (one time) costs, and their variable (recurring) costs, server time and other computing services, cost pennies per active user per day

We are a physical business, in every sense of the word. Every month we take delivery of hundreds of pounds of American-made paper in our Chicago office. That paper is turned into letters, folded, put into an envelope, and inspected and affixed with a stamp by a real human.

This has a cost. I won’t get into the exact costs of producing our letters, but I will say that a US First-Class Mail stamp is about $0.50, and we spend about 4-8x more on our paper and envelopes than you’d spend on classic copy paper, because we believe that using quality paper makes a big difference.

Since we’re a young, small manufacturer with tight deadlines, we also lose about 5-10% of the paper, envelopes, and ink we buy to waste and errors. Netflix doesn’t have this issue: movies don’t leak.

4. Netflix is a global brand

Netflix certainly has to spend money to find customers, but most Americans below the age of 70 know what it is. Nobody has to educate the American public on what a movie is.

Netflix is a public company, and it’s talked about in newspapers, magazines, blogs, and TV shows every day.

Letterjoy is a small business with a few thousand members. That means that we need to spend a lot of money to bring in new members, and grow the business. We’re an atypical business, so we also have to spend money to educate potential customers on what we do (I admit it: This is the sort of business that biz-school professors warn you to avoid).

That we’re a niche business with a limited market (history nerds who like mail and have about $15/month to spend) makes this harder.

5. Letterjoy is a small business.

You’ve probably heard the famous stat before: 80% of new businesses fail within the first year. Thankfully we’ve made it past that first year, but we’d like to be around for years to come.

Running Letterjoy is a full-time job. I’ve tried it as a hobby, and it’s not sustainable unless I (or someone else) can fully commit to it. To do that, Letterjoy needs to generate enough revenue to sustain itself, pay our staff a living wage, and pay my salary (which I’m not yet taking). You’ve probably seen from sections 1-4 that our margins aren’t huge. We can’t cut them any lower, because if we did Letterjoy simply wouldn’t be sustainable.

That may change. As we get bigger, our economies of scale on paper and envelopes is getting better. For now though, our pricing is what it is.

Conclusion

All of the above is not meant as a complaint. I love running Letterjoy, learning obscure things about history, and hearing how our letters brighten our customers’ days. I probably have one of the few businesses in the world where I receive (actual) thank you letters, rather than emails. I frame them.

The goal of this post was to explain a common (and understandable) question I get, because it’s much harder to explain in 280 characters.

Last point: Our pricing isn’t all that much higher than Netflix. My family Netflix plan is $10.99 a month. Letterjoy plays start at about $13.30 per month (and we’re a lot cheaper than your cable bill).

(Written at 3AM on a Sunday night after another exhausting day of running a business)

Michael Sitver