nearly two-year dispute, the U.S. Postal Regulatory Commission has ruled that
the U.S. Postal Service gave an unfair advantage to GameFly
competitors like Netflix and Blockbuster.
initially filed the complaint
against the U.S. Postal Service on April 23, 2009 after spending the
previous 18 months trying to sort the conflict out informally. GameFly claimed
that the U.S. Postal Service was charging the video game subscription company
more for postage, sorting, and breakage of disc mailings than Netflix and
Netflix DVDs are returned in a prepaid,
letter-sized mailer that is non-machinable. These discs are often damaged and
can cause machine jams, but many Netflix DVD mailers are separated and hand
processed by the U.S. Postal Service without a non-machinable surcharge.
discs, on the other hand, were being damaged due to automated letter processing
equipment. To make matters worse, the U.S. Postal Service was unwilling to hand
process GameFly's discs, which resulted in an additional ounce charge on all
GameFly mail (which is about 1.2 million shipments per month).
to GameFly, Netflix pays a one-ounce letter rate of $0.44 in order to avoid
automated letter processing of return mailers. GameFly, on the other hand, pays
a two-ounce flat rate of $1.05, which is a difference of about $730,000 based on its volume. David Hodess,
President and CEO of GameFly, noted that this amount "represents more than
100 percent of GameFly's monthly net income in 2011."
Postal Service argued that GameFly did not use letter mail and designed its
flat pieces to weigh two ounces for machine processing. Also, it noted that
GameFly did not have an easily identifiable mailpiece design.
U.S. Postal Regulatory Commission has found that the U.S. Postal Service had
"unduly discriminated against GameFly." The Commission said that
GameFly runs similarly to NetFlix and Blockbuster, and that the U.S. Postal
Service has 60 days to establish two parallel rate categories "within
First-Class Mail for round-trip DVD mail."
rate category is to establish that DVDs sent as presorted First-Class mailers
to customers will not acquire a non-machinable surcharge when it is returned to
the U.S. Postal Service. The second rate category authorizes that DVDs mailed
as First-Class Mail flats will not acquire ounce charges when being sent to and