Gamefly, an online video game rental service has filed an official complaint with the Postal Regulatory Commission (PRC) against USPS claiming preferential treatment for Other DVD Mailers Netflix and Blockbuster .

Excerpts from the complaint…

A DVD is small and light enough so that, when mailed in a lightweight mailer, the combined mailpiece can qualify as a one-ounce letter. Since the beginning of GameFly’s operations, however, the company has experienced breakage of DVDs in the mail, particularly when the DVDs are enclosed in lightweight mailers without protective inserts.

Testing by GameFly and Postal Service personnel has revealed that breakage occurs during the processing of DVD mailers on Postal Service automated mail processing equipment.

A new video game DVD costs GameFly as much as $50 to purchase.

In an effort to reduce the breakage of DVDs in transit, GameFly began inserting cardboard protectors into its DVD mailers in November 2002, about one month after the company began operations. The protectors reduced, but did not eliminate, the breakage. Moreover, the protectors increased the size and weight of the mailpieces enough to require their mailing as two-ounce flats.

In July 2007, in response to the rate increases on flat-shaped First-Class Mail in Docket No. R2006-1, GameFly began working with the Postal Service to test a variety of designs of mailers without a protective insert. The tests, which continued until July 2008, involved four progressively larger designs. While increasing the external dimensions of the mailer tended to reduce the breakage rate, even the largest of the test mailers had a breakage rate of almost two percent (approximately double the breakage rate the GameFly currently experiences with a protective insert).

The test results persuaded GameFly to continue using a mailer with a cardboard protective insert, despite the added weight and postage.

Moreover, the Postal Service failed to stop breaking GameFly DVDs despite collecting the higher rates charged for flat-shaped First-Class Mail, and even after GameFly began marking its mailers with warnings such as “FIRST-CLASS MAIL FLAT” and “PROCESS ON AFSM-100”.

In addition to breakage, GameFly DVD mailers have also experienced substantial rates of loss in transit. The Office of Inspector General and the Postal Inspection Service have made vigorous efforts to control the problem. OIG/Postal Inspection Service investigations have led to the arrest of 19 Postal Service employees for alleged theft of GameFly DVDs at a number of Postal Service facilities. Fourteen of the arrests have occurred since the beginning of 2007. These enforcement initiatives have reduced, but not eliminated, the losses. Read more of this complaint against USPS
GameFly is not the only mailer to experience significant DVD breakage rates on automated mail processing equipment. In response to this phenomenon, the Postal Service has adopted a practice of manually culling out the DVD mailers of two high-volume shippers of DVDs, Netflix and Blockbuster, for special processing

GameFly has asked the Postal Service to give GameFly’s DVD mailers processing on terms and conditions comparable to the terms and conditions offered to two larger DVD mailers, Blockbuster and Netflix. The Postal Service has not done so.