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Netflix Postal Advantage Comes to an End

(CN) – The D.C. Circuit approved the Postal Commission’s plan to end DVD-mailer discrimination – and Netflix’s favored status at the U.S. Postal Service – by equalizing the postage for DVD flats and letters.

Last year, the D.C. Circuit ended the U.S. Postal Service’s favoritism toward Netflix mail, which sorted Netflix DVD-mailers by hand, free of charge, while sending other companies’ DVD-mailers through automated processing machines.

GameFly, a video game rental service, challenged the Post Office’s bias in court, claiming that automatic processing often damages DVDs, requiring Gamefly to package their discs in heavier – and therefore, more expensive – cardboard packaging.

Read more: Courthouse News Service.

Netflix could gain from loss of Sat. mail delivery

Netflix won’t miss Saturday mail delivery, even though the weekend service helped keep its DVD-by-mail subscribers happy.

The U.S. Postal Service’s planned shift to five days of home delivery a week instead of six may even make Netflix Inc. slightly more profitable by lowering the costs for sending out its familiar red envelopes with DVDs. That’s because subscribers may be able to watch fewer DVDs for the same monthly price.

Read more: Netflix could gain from loss of Sat. mail delivery – Businessweek.

Appeals Court rules in favor of Gamefly in Netflix/USPS dispute

The DC Circuit Court of Appeals has ruled in favor of Gamefly in its dispute with the US Postal Service and the Postal Regulatory Commission. The Court ruled that the USPS gave special treatment to Netflix DVDs, while refusing GameFly the same level of service for its DVDs. The Court summarized the dispute:

Because the disks are small and light, they qualify for mailing in one ounce letters through the Postal Service. Unfortunately for GameFly, but as it develops not Netflix, the Postal Service’s automated mail processing often damages the DVDs— particularly on the return trip. Conversely, DVD mailers tend to jam the Postal Service’s automated letter sorting equipment. Again, this has been to the detriment of GameFly but not Netflix. The Postal Service has saved Netflix— apparently its biggest DVD mailer customer— from this crippling otherwise industry-wide problem by diverting Netflix mail from the automated letter stream, shifting it to specially designated trays and containers, hand culling it, and hand processing it. Rather obviously, this is not without cost to the Postal Service. Nonetheless, the Service provides it to Netflix free of charge.

GameFly has requested that the Postal Service extend to its mailings the same treatment afforded Netflix. The Postal Service has refused…

Gamefly asked the Postal Regulatory to intervene in 2009. The Commission, known for its sluggish decision making process, took two years to come up with a fairly incomprehensible decision that basically said GameFly was right, but failed to eliminate the discrimination:

The Commission rejected both of GameFly’s proposed remedies and fashioned one of its own instead. First, it ordered the Postal Service to waive the 20-cent second-ounce charge for DVDs mailed as flats. Second, it ordered the Postal Service to refrain from imposing a nonmachinable surcharge on any qualifying round-trip DVD mailer that is sent as letter mail and that weighs one ounce or less. The Commission acknowledged that its order could still require GameFly to “continue to generate more than double the contribution per piece than Netflix mail,” but it explained that “the remaining rate disparity is reasonable in light of the differences between the letter-shaped and flat-shaped roundtrip DVD mailers.” GameFly petitioned for review of the Commission’s order.

Not surprisingly, the Appeals Court has found the PRC’s decision to be “arbitrary and capricious”, because it did nothing to remedy the discriminatory practices of the USPS.

Unfortunately for GameFly. the remedy provided by the Court is to send the case back to the PRC- and it didn’t set a deadline for coming up with a better decision…

DVDs Will Be Staying at Netflix.com

LOS GATOS, Calif., Oct. 10, 2011 /PRNewswire/ — Netflix, Inc. (Nasdaq: NFLX) today said it will not rename its DVD-by-mail service and that its U.S. members will continue to go to the Netflix website for both unlimited streaming and unlimited DVDs.

Netflix said in a September 18 blog post that its DVD-by-mail service would operate at Qwikster.com. Instead, U.S. members will continue to use one website, one account and one password for their movie and TV watching enjoyment under the Netflix brand.

"Consumers value the simplicity Netflix has always offered and we respect that," said Netflix co-founder and CEO Reed Hastings. "There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case."

Netflix today informed its U.S. members in personal emails and a post on the Netflix Blog on http://blog.netflix.com/.

Gamefly asks PRC to hurry up- postage dispute is eating into its profits

In a letter to Postal Regulatory Chairman Ruth Goldway, Gamefly CEO David Hodess has asked the PRC to expedite its consideration of Gamefly’s appeal against the USPS’s alleged discrimination against the company. Gamefly, which rents game DVDs by mail, claims that the USPS gives preferential treatment to Netflix:

I am writing to you to request that the Commission do what it can to expedite its decision in the GameFly complaint proceeding. GameFly frled this complaint nearly two years ago. Before that, GameFly spent 18 months working with the Postal Service in an attempt to resolve informally the issues on which the complaint was based.

I understand that the Commission has competing demands on its resources. Delay in resolving the case, however, is costly to GameFly. At the company’s current volume of approximately 1.2 million shipments per month, the difference between the two-ounce flats rate of $1.05 that GameFly must pay to avoid automated letter processing for most of its DVD mailers, and the one-ounce letter rate of $0.44 that Netflix pays to avoid automated letter processing of return mailers, amounts to about $730,000. This amount represents more than 100% of GameFly’s monthly net income in 2011.

Respectfully submitted,
David Hodess
President and CEO