GameFly Still Seeking Postal Service Bailout

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.


3 comments

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  1. Randy F March 28, 2011 at 8:39 pm #

    Funny how it is USPS discrimination when GameFly has been made aware over and over how they can reduce their postage costs. The assertion in this story that the packaging is deliberately bland so that it "blends in" to prevent theft by Post Workers is ridiculous.

    Although it does happen, it is very rare that a Postal Worker commits a theft from the mail. I would also state that it is just about as easy to pick out the GameFly mailers as it is for NetFlix and Blockbuster mailers. As a career Postal Worker, I take offense at that statement.

    Simple fact is that Gamefly sends an item that is configured and must be handled as a Flat. Netflix is a Letter. Different machinery, different rate structure, different everything.

    GameFly needs to make a simple business decision. How much of their product would be subject to loss or breakage each month and is that amount less than the supposed excess Postage of $730,000 they claim they are paying?

    In another article it is stated that GameFly invests about $50 in each game they rent out. The math is easy. At this point, GameFly could replace 1.46 Million game discs each month. Somehow I get the idea that they do not even ship that many pieces in a month.

    Bottom line, construct your packaging to qualify as a letter and make it noticeable and GameFly can enjoy the exact same level of handling and service from the USPS as is provided to NetFlix. This seems to be what GameFly is getting at. So, if you want the same treatment as NetFlix, do things exactly as NetFlix does.

    Simple.

  2. David D March 28, 2011 at 9:16 pm #

    Randy, most of your points are well taken, but your math is faulty. 1.46 million games times $50 is $73,000,000, not $730,000. So they could actually replace 14,600 games with that money, or a little more than 1% of the disks they ship.

  3. C P March 29, 2011 at 6:42 am #

    Actually, several postal employees were caught stealing thousands of GF disks and reselling them. Link: http://www.hackingnetflix.com/2009/10/philadelphi