Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
GameFly says it pays more than double what Netflix pays in postage.
GameFly Inc.’s allegations that the U.S. Postal Service did not give it the same pricing as similar organizations that send discs by mail to consumers were backed up today by judge David Sentelle of the U.S Court of Appeals District of Columbia Circuit.
In its case against the postal service, GameFly claimed in a 2009 complaint filed with the Postal Regulatory Commission that the postal service charged Netflix Inc. a less expensive rate to mail its DVDs than it did GameFly to mail its video games, and provided manual processing services to reduce damage to Netflix mailings. The commission regulates the postal service. Neither company responded to Internet Retailer inquiries for comment. Netflix is No. 9 and GameFly in No. 150 in the Internet Retailer Top 500 guide.
The Postal Regulatory Commission in 2011 ruled in favor of GameFly, rejecting the postal service’s arguments the “discrimination was reasonable,” according to the ruling. GameFly, however, was dissatisfied with the commission’s decision not to order the postal service to offer GameFly and other DVD online rental companies the same manual processing and letter rates as Netflix and to reduce the rate for a specific type of DVD mailer.
As a result, GameFly filed an appeal of the Postal Regulatory Commission’s ruling and asked that its mailings be given the same treatment as Netflix’s. The appellate court heard the case in October and made its ruling today.
The appellate judge ruled today that the postal service must either even out the price and handling process or explain why it shouldn’t be required to do so.
According to the appellate court ruling, Netflix mailings are diverted from the automated processing system to special trays where they can be processed by hand. The postal service refused to do that for GameFly, the court says.
Because it doesn’t qualify for manual processing, GameFly must send its mailings as first class flats, at a more expensive rate than the first class letter rate of 44 cents. Flats are envelopes that exceed standard letter sizes by length, width or thickness. The first class flat rate is 88 cents. And, because GameFly uses a protective cardboard insert to protect its mailings from the automated sorting process, the flat weighs more, activating a second-ounce charge of 20 cents.
Mailing costs are steep for GameFly and Netflix. In its 2009 complaint, GameFly said its annual mailing costs were more than $9 million. In 2010 Netflix estimated it would spend $600 million on postage that year, according to a document filed with the Postal Regulatory Commission, which regulates the postal service.