GameFly Decries Netflix’s Sideline Acrimony

8 Sep, 2010 By: Erik Gruenwedel

Characterizing Netflix’s pre-Labor Day legal musings as “a last bit of summer frivolity,” online video game rental service GameFly has implored the online DVD rental pioneer to mind its own business.

Los Angeles-based GameFly last year filed a complaint with the U.S. Postal Commission alleging discrimination that the postal service provided “unreasonable preferences” in rates and handling practices to Netflix and Blockbuster when dealing with DVD mailers.

In a Sept. 7 filing with the Postal Regulatory Commission, GameFly wondered why Netflix felt the need to voice its concerns in a Sept. 1 filing when it is not a party to the complaint — a position GameFly asserts is driven by Netflix’s desire to avoid revealing proprietary information.

Specifically, GameFly said it must pay an additional $1.22 per DVD mailer to avoid automated (machine) letter processing and broken discs — a fee Netflix does not pay.

“Netflix has built a $2 billion-a-year business on a deal with the Postal Service that allows the vast majority of Netflix return DVD mailers to bypass automated letter processing at no extra charge,” GameFly said in the filing.

GameFly alleges the Postal Service refuses to offer comparable terms to it or any other DVD rental service.

Netflix, which is the postal service’s largest individual customer with more than $600 million in annual postage fees, warned that if it was assessed additional fees, it would be forced to curtail its by-mail rental service and accelerate digital distribution.

GameFly said Netflix’s “saber-rattling” was directed at the wrong party, considering the Postal Commission’s duty is to determine whether GameFly has been discriminated against, not whether Netflix’s business might be adversely affected.

“If Netflix’s mail is as profitable to the Postal Service as Netflix claims, and as vulnerable to electronic diversion, GameFly is confident that the Postal Service will find a way to end the discrimination without jeopardizing [its] business from Netflix,” GameFly said.

Indeed, the Postal Service, which is supported in part by the Federal Government, said it lost $3.5 billion in the most recent financial period.

Regulatory expert Alan Robinson said in a blog post the rate differences between Netflix, GameFly and Blockbuster By Mail, among others, underscores the shortcomings dealing with a system burdened by regulatory processes instead of the free market.

“All mailers would benefit from a Postal Service that had to know its customer's businesses as well as the customer in order to design its services and price its products,” Robinson wrote. “However, the current regulatory process does not encourage this and instead creates the adversarial environment illustrated by the exigent rate case.”

GameFly Decries Netflix’s Sideline Acrimony

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