GameFly May Be Put Out of Business by USPS Postage Costs
A while back, GameFly, an online rental/mail service for games, revealed that they were getting the shaft regarding USPS postage fees when compared with similar services like Netflix. That was nearly two years ago, and since then, little has changed. In a report by Ars Technica, the site anonymously received a copy of a letter by the GameFly president that was intended for USPS. The content of the letter reveals some bad news for the company, which isn't making enough money to support the cost of postage fees.
“At the company's current volume of approximately 1.2 million shipments per month, the difference between the two-ounce flat rate of $1.05 that GameFly must pay to avoid automated letter processing for most of its DVD mailers, and the one-ounce letter rate of $0.44 that Netflix pays to avoid automated letter processing of return mailers, amounts to about $730,000,” wrote GameFly President and CEO David Hodess. “This amount represents more than 100 percent of GameFly's monthly net income in 2011.”
The conflict, it seems, is the difference in packaging methods between Netflix and GameFly. Netflix ships in light, easy-to-identify envelopes, while GameFly adds some extra protection and masks their envelopes with the rest of the mail. The logic is that a game disc is much more valuable than a DVD movie, much more prone to theft, and more expensive to replace if it breaks. GameFly also ships from significantly fewer facilities: four versus Netflix's fifty-eight. USPS doesn't necessarily give preferential treatment; Netflix simply has a more efficient business model.
At this rate it doesn't seem like USPS is going to back down unless GameFly makes some changes. The fact that GameFly has been willing to operate at an unprofitable level for so long is also troublesome. If they remain stubborn on the issue, GameFly may soon have much bigger issues, like staying in business at all.
It's an unfortunate situation, as GameFly is a pretty convenient service. It's not quite Netflix, but then again, what is? With Netflix drifting away from the shipped envelope model and more towards streaming content, GameFly may be left struggling to catch up.