Netflix Faces the Post Office’s Ire

December 7, 2007 By Geoff Duncan

Netflix Faces the Post Office

Mail-order DVD service Netflix is facing the ire of the U.S. Postal Service: redesign your mailer or pay $0.17 more per envelope.

Many movie fans are familiar with the flimsy red envelopes used by rent-by-mail DVD service Netflix—it turns out the United States Postal Service is all-too-familiar with them too. According to a report from the Office of the Inspector General of the USPS (PDF), about 70 percent of those iconic rec two-way DVD return envelopes have to be processed manually by postal service employees because they’re so flimsy: they sustain damage, jam machines, and cause missorts during processing. The postal service estimates it’s also incurred $41.9 million in costs processing these mailers in the last two years, and will blow through another $61.5 million in the next two years, for a total DVD-mailer processing cost of $103.4 million.

To be fair, the postal service isn’t exactly singling out Netflix: it also identifies Blockbuster Online, GameFly, and Simply Audiobooks as rental service companies sending two-way return envelopes for DVDs and CDs. But Netflix is the biggest player in the market, and the postal service’s self-initiated audit of how the mailers are being processed came from concerns raised about "potential preferential treatment given to a large digital versatile disc (DVD) mailer."

The Post Office’s recommended solution: require mailers like Netflix to redesign their DVD mailers so they can be reliably machine-processed, or have them pay an additional $0.17 per envelope as a "nonmachinable surcharge."

According to the Associated Press, a Citi Investment Research analyst estimates that surcharge would erode 67 percent of Netflix’s per-subscriber monthly operating income.

Showing 6 comments

Netflix divorces discs, now what? (Digital Trends) | Breaking News Today at 11:53pm 19th September 2011 [...] are different. Where DVD-by-mail needs warehouses, inventory management, mailing services (and the goodwill of the postal service), plus all the paraphernalia of dealing with a business shipping physical goods, streaming is a [...]
Netflix divorces discs, now what? at 3:55pm 19th September 2011 [...] are different. Where DVD-by-mail needs warehouses, inventory management, mailing services (and the goodwill of the postal service), plus all the paraphernalia of dealing with a business shipping physical goods, streaming is a [...]
Gamefly breaks into digital distribution, will offer unlimited PC and Mac downloads at 7:40pm 9th August 2011 [...] company’s by-mail video game rental subscription service is similar to the pre-streaming Netflix of old. Gamefly focuses primarily on current gen consoles such as the Wii, PS3 and the Xbox, [...]
W. J. Gardner at 11:18pm 8th December 2007 As an ex-substitute mail CARRIER (back when we actually carried the mail including LIFE magazine), I can only chuckle when I hear the US Postal Service plead for more revenue. I was able to case my mail, deliver it to an unfamiliar route and drive over the Skulkill bridge in time to work an 8-hr shift at Campbell Soup during tomatoe season for three months between semesters at Med School. Not my idea of a demanding job,and the pay was great...not to mention the perks the full-time employees get. Overworked & Underpaid we were not. Sol'n: charge more for Junk Mail.
Roger at 11:00am 7th December 2007 The post office is getting super greedy lately. Evyerthing costs more through them, and they seem bent on gouging consumers. Let's be real here, if they increase prices too much, they will lose business. Fed Ex and UPS are MUCH better at what they do.
milliamp at 11:00am 7th December 2007 You left out an important point.
The post office charges more to send envelopes that are in the shape of a square.

To counter this Netflix and others have added excess length on 2 sides to make the envelope rectangle in shape.

Now the post office is countering by stating the excess paper on the side is too flimsy and they are going to charge them extra anyway.

Interesting little spat.