Regulators deny USPS bid to launch DVD shipping service for rental firms

The long-running saga over DVDs-by-mail services in the United States has taken another twist, with regulators rejecting a new service proposed by the US Postal Service. The Postal Regulatory Commission yesterday denied a request by USPS to launch a “Round-Trip Mailer” service to ship DVDs and video games from rental companies to their customers, so that customers can then also return the items through the mail through pre-printed envelopes.

The service proposal resulted from the 2009 complaint by video game rental firm GameFly that the Postal Service was favouring its rivals, Netflix, in how its DVD mailings were priced and handled.

Following various regulatory reviews and court hearings, the latest attempt by the Postal Service to deal with its DVD shipping offering was rejected on the grounds that USPS wanted it to be a competitive service.

As a competitive service — instead of a more regulated market-dominant service like First Clas Mail — the service would avoid certain regulatory controls and allow USPS more power to set prices. Under US postal law, USPS could only run the service as a competitive service that if it has significant competition in the market.

The Postal Service had claimed that there is plenty of competition for the DVDs-by-mail service — in the form of digital streaming services.

But the claim did not carry weight with the regulators, who said that the Postal Service is the only significant company in the US providing delivery services for rental DVDs.

The Commission concluded: “The Postal Service has failed to demonstrate that the alleged forms of competition upon which it relies prevent it from exercising sufficient market power to “effectively set the price of [the Round-Trip Mailer] substantially above costs, raise prices significantly, decrease quality, or decrease output, without risk of losing a significant level of business to other firms offering similar products.”

The regulator noted that legal precedents and technological progress might mean that at some point in the future, the Postal Service might make an argument for such a service as having competition.

“No close substitutes”

Gamefly and rivals Netflix had both commented on the proposed service to state that having “no close substitutes” the Postal Service’s market power in DVD shipping meant it would be able to set prices “substantially above costs”.

Gamefly said it would have to absorb any price increases and would not be able to simply pass them on to their customers.

During the assessment of the Round-Trip Mailer, the Postal Service had support from shipping rival FedEx in stating that the service should not be covered by the postal monopoly. FedEx had said that DVD mailing service was not a “letter” and therefore was beyond the scope of the monopoly.

But Netflix argued that since the DVD is providing content to recipients, it is effectively a “letter” so could be part of the postal monopoly.

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