By Jared Newman | Monday, March 28, 2011 at 4:30 pm
GameFly is making some scary claims about the amount of money it spends on shipping.
In a distressed letter to the U.S. Postal Service, obtained by Ars Technica, the mail-order game rental service says it pays such higher shipping rates than Netflix to mail physical media that the cost difference alone is higher than GameFly’s net monthly income. If I’m understanding correctly, that doesn’t mean GameFly is losing money — net earnings would be the amount the company earns after expenses, including shipping — it just means the Postal Service is making an awful lot from the arrangement.
GameFly is complaining that Netflix only pays 44 cents per mailing to avoid automated letter processing of return mailers — a process that can reportedly damage optical media — whereas GameFly must pay $1.05 per mailing for manual sorting. Given that GameFly mails about 1.2 million games per month, the difference in rates between the two services comes to roughly $730,000.
The company is seeking an expedited decision on claims of discrimination, which it originally submitted in 2009.
But as Ars points out, the cost difference is a complicated matter. Whereas Netflix uses letter-shaped mailers, GameFly uses square mailers with cardboard inserts — a necessary step considering that video games are about three times more expensive than DVDs. Also, Netflix’s mailers are bright red to assist with manual sorting, while Gamefly’s are white and orange in an attempt to blend in with other envelopes and prevent theft by postal workers. And GameFly uses a return shipping method that requires an extra accounting step on the Postal Service’s end.
In other words, GameFly may have a hard time arguing that Netflix gets preferential treatment for no good reason. Still, I can see why the company is making these claims: According to the figures GameFly provided to the Postal Service, the number of shipments it sends now is more or less the same as it was a year ago. In lieu of growth, GameFly may be trying to raise profits by cutting down its shipping costs.
Ideally, GameFly would be able to attract new customers, but its biggest weakness — an inability keep up with demand for new and popular games — hasn’t improved over the years. That makes GameFly hard to recommend unless you’ve got a lot of patience, ad there’s nothing the Postal Service can do about that.