Court Orders Postal Service to Remedy Netflix Bias11 Jan, 2013 By: Erik Gruenwedel
A federal appeals court in the District of Columbia Jan. 11 ruled the United States Postal Service must amend or clarify why it grants special shipping and handling favors to Netflix and not other disc rental services.
"The [Postal] Commission must either remedy all discrimination or explain why any residual discrimination is due or reasonable," Judge David Sentelle wrote in the ruling.
The ruling is a big win for GameFly, a by-mail video game rental service, which in 2009 filed a complaint with the USPS alleging discrimination the service provided “unreasonable preferences” in rates and handling practices to Netflix and Blockbuster when dealing with DVD mailers.
The Los Angeles-based service, which at the time of the filing said it shipped about 590,000 discs per month, contended that to meet the 1-ounce first-class mail weight limit, it experienced a surge in broken discs due to absence of protective inserts in mailers. Adding the inserts bumps the mailer to 2 ounces, increasing postage from 42 cents to $1.
Upon visual inspection of several postal processing facilities, GameFly alleged it saw workers processing both Netflix and Blockbuster first-class mailers by hand, unlike most first-class mail that is processed via automation. GameFly asserted the issue became acute after Blockbuster announced plans to test by-mail distribution of video games. Netflix does not rent games.
"Rather obviously, this is not without cost to the Postal Service," Sentelle wrote. "Nonetheless, the service provides it to Netflix free of charge."
Netflix, however, has been the Postal Service’s largest private customer, generating more than $600 million in first-class postage fees for its disc mailers in 2010.
Netflix, which is transitioning into a subscription video-on-demand service, has remained on the sidelines on the issue. Co-founder Reed Hastings, in fiscal calls with analysts, has only commented on proposed cutbacks by the postal service, including halting Saturday delivery.
"DVD by mail may not last forever, but we want it to last as long as possible," Hastings said in 2011 — the same year Netflix attempted unsuccessfully to spin off its disc business.
A GameFly representative was not immediately available for comment.