LOS GATOS, Calif., Oct. 10, 2011 /PRNewswire/ — Netflix, Inc. (Nasdaq: NFLX) today said it will not rename its DVD-by-mail service and that its U.S. members will continue to go to the Netflix website for both unlimited streaming and unlimited DVDs.

Netflix said in a September 18 blog post that its DVD-by-mail service would operate at Qwikster.com. Instead, U.S. members will continue to use one website, one account and one password for their movie and TV watching enjoyment under the Netflix brand.

"Consumers value the simplicity Netflix has always offered and we respect that," said Netflix co-founder and CEO Reed Hastings. "There is a difference between moving quickly — which Netflix has done very well for years — and moving too fast, which is what we did in this case."

Netflix today informed its U.S. members in personal emails and a post on the Netflix Blog on http://blog.netflix.com/.

In a letter to Postal Regulatory Chairman Ruth Goldway, Gamefly CEO David Hodess has asked the PRC to expedite its consideration of Gamefly’s appeal against the USPS’s alleged discrimination against the company. Gamefly, which rents game DVDs by mail, claims that the USPS gives preferential treatment to Netflix:

I am writing to you to request that the Commission do what it can to expedite its decision in the GameFly complaint proceeding. GameFly frled this complaint nearly two years ago. Before that, GameFly spent 18 months working with the Postal Service in an attempt to resolve informally the issues on which the complaint was based.

I understand that the Commission has competing demands on its resources. Delay in resolving the case, however, is costly to GameFly. At the company’s current volume of approximately 1.2 million shipments per month, the difference between the two-ounce flats 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. This amount represents more than 100% of GameFly’s monthly net income in 2011.

Respectfully submitted,
David Hodess
President and CEO

LOS GATOS, Calif., Nov. 22, 2010 /PRNewswire/ — With its members now watching more content streamed over the Internet than on discs delivered by mail, Netflix, Inc. (Nasdaq: NFLX) today introduced a $7.99 streaming-only subscription plan in the United States, the first time it is promoting a 100 percent streaming option in the U.S. The plan, which allows members to instantly watch unlimited movies and TV episodes streamed from Netflix to TVs and computers, is available now to both new and existing members.

“We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet,” said Reed Hastings, Netflix co-founder and CEO. “Today’s action reflects the tremendous customer value we’ve injected into streaming from Netflix, our initial success with a pure streaming service in Canada for $7.99 a month and what our U.S. members tell us they want.”

The company also announced that the price of its popular subscription combining unlimited movies and TV shows streamed instantly over the Internet and unlimited DVDs delivered quickly by mail, with one DVD out at a time, will increase by a dollar a month to $9.99. Prices of subscription plans allowing for more DVDs out at a time will also increase and are detailed at http://blog.netflix.com. Price changes take effect now for new sign-ups and in January for existing members.

Instantly watching movies and TV shows streamed over the Internet has become the preferred way members enjoy the Netflix service. The company recently announced that in the current quarter, which ends December 31, its members will watch more content streamed over the Internet than on DVDs and that in the same period Netflix will invest more money to license streaming content than to acquire DVDs.

Netflix members in the U.S. now have access to an ever expanding library of movies and TV episodes that can be watched instantly, and there are more than 200 consumer electronics devices – including the three major game consoles and scores of Blu-ray disc players, Internet-connected TVs and digital video players – capable of streaming from Netflix right to members’ TVs.

Over time, Netflix has added significantly to the streaming content available to its members. This year alone, licensing deals with NBC Universal, Warner Bros., 20th Century Fox, EPIX™, Relativity Media and Nu Image/Millennium Films have added a wealth of first-run theatrical films, hit TV series and movie classics to the Netflix streaming offering and have helped make streaming the most popular way to enjoy a Netflix membership.

In late September, the company introduced its service in Canada, the first availability of Netflix outside the U.S. Canadian members can instantly watch unlimited movies and TV shows streamed from Netflix for C$7.99 a month. The company recently said its Canadian service has surpassed initial expectations and encouraged it to accelerate plans for further international expansion in 2011.

LOS GATOS, Calif. and SAN FRANCISCO, Oct. 14 /PRNewswire/ — Netflix, Inc. (Nasdaq: NFLX) and Dolby Laboratories, Inc. (NYSE: DLB) today announced that Netflix has selected Dolby® Digital Plus to deliver 5.1-channel surround sound for TV shows and movies streamed instantly over the Internet. Beginning October 18, the PlayStation®3 (PS3™) computer entertainment system from Sony Computer Entertainment, Inc. will be the first consumer electronics device to support 5.1-channel surround sound on movies streamed from Netflix. Netflix said more devices would be added over time to support streaming digital surround sound.

“Netflix is committed to delivering an unparalleled experience to its members who watch TV shows and movies streamed instantly over the Internet,” said Greg Peters, Netflix vice president of product development. “Netflix required an audio solution that could efficiently deliver an outstanding surround sound experience for a wide range of consumer devices. Dolby Digital Plus proved to be the best solution to meet our needs and the needs of our device partners.”

Dolby Digital Plus supports up to 7.1 channels of premium-quality surround sound and allows consumers to enjoy outstanding high-definition audio from broadcasts, streaming and downloaded media, and Blu-ray Disc™. To date, tens of millions of TVs, set-top boxes, Blu-ray Disc players, Audio/Video receivers, and mobile phones have shipped with Dolby Digital Plus.

“Dolby Digital Plus makes the online entertainment experience rich, realistic, and memorable,” said John Couling, vice president, marketing, products & platforms, Dolby Laboratories. “Dolby is excited to be working with Netflix and its partners to provide premium Dolby surround sound to Netflix subscribers. This collaboration will enable subscribers to enjoy movies and TV shows presented in surround sound just as the artists and directors intended.”

Dolby Digital Plus is a sophisticated audio system based on Dolby Digital that has been adopted by many of the world’s leading broadcasters, TV and set-top-box manufacturers, and device makers to provide consumers with full digital surround sound. It is designed to adapt to the changing demands of entertainment delivery while retaining compatibility with existing Dolby Digital 5.1-channel home theater systems.

The sniping between Netflix and Gamefly before the Postal Regulatory Commission continued this week as Gamefly characterized last week’s Netflix filing as “a last bit of summer frivolity”. It calls Netflix’s concern about handing over copies of its research as so much “hand-wringing”, and then gets into the main issue: Netflix’s assertion that Gamefly is attempting “to manipulate the Postal Service, through the PRC, into offering it favorable mailing rates”. Gamefly responds:

… the spectacle of Netflix lecturing GameFly about the nondiscrimination it seeks is a bit much. Netflix has built a $2 billion-a-year business on a deal with the Postal Service that allows the vast majority of Netflix return DVD mailers to bypass automated letter processing at no extra charge. Because the Postal Service refuses to offer comparable terms to GameFly (or any other DVD rental company), GameFly must pay $1.22 extra in postage per DVD round trip to similarly avoid automated letter processing. No amount of blame-the-victim rhetoric can change these facts.

Netflix’s saber-rattling about taking its business elsewhere if the Commission decides this case in favor of Gamefly is, like Netflix’s grievance about the discovery of Mr. Lundahl’s studies, addressed to the wrong party. The Commission’s duty in this case is to enforce the prohibitions of Title 39 against “undue or unreasonable discrimination among users of the mails” and “undue or unreasonable preferences to any such user.” If the Commission finds that the Postal Service has engaged in undue discrimination, the Commission must order the Postal Service to end the discrimination. If Netflix’s mail is as profitable to the Postal Service as Netflix claims, and as vulnerable to electronic diversion, GameFly is confident that the Postal Service will find a way to end the discrimination without jeopardizing the Postal Service’s business from Netflix.

Read the full document filed by Gamefly

In comments filed with the Postal Regulatory Commission (PRC) this week, Netflix has accused Gamefly, the game rentals-by-mail company, of attempting “to manipulate the Postal Service, through the PRC, into offering it favorable mailing rates.” Netflix also issued a warning that a decision in GameFly’s favor could “result in reduced DVD shipment growth from Netflix as well as accelerate the ultimate decline of DVD shipments as Netflix would shift more resource to the digital delivery of content”. The PRC is in the process of investigating claims by Gamefly that the USPS gives Netflix a better deal than it offers Gamefly for mailing DVDs.

The Netflix charges came in response to a demand by GameFly that the Postal Service produce confidential Netflix research documents that were mentioned in earlier testimony by a USPS witness. The witness, Robert Lundahl, had testified that “certain changes in DVD design, manufacturing, packing and handling would enable GameFly to avoid DVD breakage from automated letter processing.” When Gamefly asked to see the research Lundahl used to reach this conclusion, the postal service had argued that it could not disclose the research because it was proprietary Netflix information. Gamefly responded that in that case, the entire testimony of the witness should be stricken from the record.

In its comments filing, Netflix said that it would release the research data “under seal”, meaning that it is not to be publicly disclosed. Netflix suggested though, that GameFly’s request was “principally an attempt by GameFly to gain for free the benefit of research paid for by Netflix”.

While Netflix is not technically a party to the GameFly complaint docket, it is obviously concerned about what impact the PRC’s decision in the case could have on its business, as evidenced by the final paragraph of its comments:

Lastly, Netflix wants to highlight its concern regarding the potential actions the PRC may take in resolving this matter. Netflix cannot but express the sense that it may become the proverbial innocent bystander who is accidently shot during a botched bank robbery. GameFly’s attempts to seek redress for supposed “discrimination” if satisfied by this Commission in a manner that impacts Netflix’s operations, could jeopardize what Netflix has been told is the most profitable mailing arrangement enjoyed by the Postal Service, and exacerbate the Postal Services’ already dire financial situation. Such a decision would likely result in reduced DVD shipment growth from Netflix as well as accelerate the ultimate decline of DVD shipments as Netflix would shift more resource to the digital delivery of content.

Witness Lundahl was to have been cross-examined this morning, but GameFly requested a postponement of the hearing due to the illness of its lead counsel. No new hearing date has been set.

Home Media Magazine reports that Netflix doesn’t have a problem with the US Postal Service’s proposed 2 cent increase in the cost of mailing a first class letter:

The Los Gatos, Calif.-based online DVD rental pioneer, which spends more than $600 million annually on two-way first-class mailers, said it supports measures aimed at helping the postal service narrow budget shortfalls.

“We are supporting the postal service with all of its proposed changes, not just one in a vacuum,” said Netflix spokesperson Steve Swasey. “We believe a stronger postal service with affordable rates is better than a weakened service. They needed to make some changes.”

It wasn’t immediately clear what impact a 7% rate hike would have on Netflix’s bottom line.

(Note: Home Media gets it wrong here- first class rates, which is what Netflix pays for its DVD’s, are going up 4.5%, not 7%. The error apparently originated yesterday at the newteevee.com blog, and has been replicated in many news stories since.)

Last month before a Senate House Committee hearing, Andrew Rendich, chief service and DVD operations officer with Netflix, said Netflix would not support rate hikes aimed at buttressing the postal service’s retiree health benefits, which he said represent $5.5 billion to $5.8 billion in annual obligations and dwarf nearly all other of the service’s day-to-day operating costs.

“Allowing the postal service to restructure retiree health benefit payments under a ‘pay-as-you-go’ method, comparable to what is used in by the rest of the government and the private sector, would improve the service’s cash flow and likely reduce pressure to raise rates above what is necessary,” Rendich said.

via Netflix Supports Proposed Postal Rate Hike | homemediamagazine.com.

Netflix announced this week that the company added 1.1 million subscribers in the fourth quarter of 2009, the best quarterly growth in the company’s history. The company also noted that almost one half of its subscribers have used its streaming option to view movies and TV shows on computers, game consoles, and other internet-connected devices, without the need for mailing a DVD. Netflix sees streaming as its best long term growth market, and CEO Reed Hastings pointed out in a conference call with investors, “… most of our advertising purchasing has moved to be streaming-centric, our default home page is now our instant watching home page, and our PR is increasingly focused on instant watching.”

Despite the emphasis on streaming, Hastings said the company sees more room for growth in the mailed DVD segment of its market:

Our year-over year disc shipments continue to grow steadily, and we think we’ll be mailing discs as part of our service for another 20 years… This year, for the first time in recent memory, we don’t expect a postal rate increase. Despite that, we’ll spend about $600 million on postage this year shipping DVD and Blu-ray movies to our subscribers. Given the rate of video store closures, we think our shipments will continue to grow and that our annual postage will grow to over $800 million in a few years.

In answer to an analyst’s question, Hastings said that the company was satisfied with the performance of its “hybrid” mail/streaming product, and has no plans to introduce a streaming only option.

In a request filed with the Postal Regulatory Commission, Gamefly, a company that rents game DVDs via the mail, seeks to compel the US Postal Service to provide information the USPS says is off-limits.

In its motion, Gamefly says:

In its objections, the Postal Service seeks to place three kinds of information offlimits to discovery: (1) information about any aspect of preferential treatment received by Netflix other than the degree of manual processing of return DVD mailers; (2) information about the treatment received by DVD rental companies—other than GameFly—that have smaller mail volume than Netflix and Blockbuster; and (3) certain information about the Netflix-only drop slots at local post offices. These restrictions are unfounded.

Gamefly points out that the USPS has already admitted that Netflix receives special treatment:

The first issue has been resolved by the Postal Service’s own statements in this case. The Postal Service initially asserted that it had abandoned its practice of giving manual culling and manual processing to “the largest movie DVD providers” in the wake of the November 2007 report of the Office of Inspector General, and specifically “denie[d] that any ‘large percentage’ of inbound movie DVDs are processed manually.” Since GameFly began discovery, however, the Postal Service has admitted that the preferential treatment given to Netflix has continued or even increased since the OIG report. The Postal Service’s August 14 response to GFL/USPS-18, for example, admits that “the amount of manual processing of Netflix mail is likely at least as large as was set forth in the [Office of Inspector General Audit] Report, though no specific percentages are available.”

The Gamefly motion concludes:

A variety of information indicates that the Postal Service’s preferential treatment of Netflix is driven primarily by a desire to cater to a large customer, and that the operational needs that supposedly justify this discrimination are pretexts.

(1) Perhaps the most telling sign is the inability of the Postal Service to keep its story straight about whether it is discriminating at all. As noted above, at the outset of this case the Postal Service represented to the Commission that the practice of giving manual culling and manual processing to “the largest movie DVD providers” had been abandoned in the wake of the November 2007 report of the Office of Inspector General.
Since then, however, the Postal Service has admitted that Netflix DVD return mailers get at least as much manual processing as in late 2007.

(2) In response to GFL/USPS-28, the Postal Service asserts that dedicated mail slots for Netflix DVD mailers in “lobby drops available for the public to deposit mail” are “against current Headquarters policy, as detailed in the attached Retail Digest.” USPS response to GFL/USPS-28 (filed August 14, 2009). The attached headquarters directive states that: In an effort to accommodate Netflix mail, some offices have created special mail drops and signage for Netflix returns. This is not an
authorized use of mail drop slots and it has legal ramification [sic] for the Postal Service.

The headquarters directive is an admission that this form of preferential treatment for Netflix has no operational justification; and the “legal ramification” alluded to is presumably liability for discrimination under 39 U.S.C. § 403(c).

In a complaint filed with the Postal Regulatory Commission, online video game rental service Gamefly accuses the US Postal Service of providing preferential treatment to Netflix and Blockbuster. The company says that its DVD’s are being damaged at an unacceptable rate despite the fact that the mailer has agreed to use sturdier mailers, and as a result pays higher postage fees per piece than the other companies. (The company also notes that a significant number of its DVDs are stolen- 19 postal employees have been arrested for stealing GameFly DVDs).

In addition, the company points out that Netflix mailers are routinely processed manually:

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.

A report by the Postal Service’s Office of Inspector General in November 2007 found that 70 percent of the two-way DVD mailers from one unnamed DVD rental company received manual processing for this reason. USPS Office of Inspector General, Audit Report No. MS-AR-08-001, Review of Postal Service First-Class Permit Reply Mail (November 8, 2007).

The Postal Service’s practice of giving manual processing to DVDs from certain large mailers has continued since the OIG report. On routine visits to multiple Postal Service facilities, GameFly’s employees have observed that a large percentage of mail pieces from Netflix and Blockbuster are culled from the automated letter processing stream.

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.

The issue has taken on additional urgency for GameFly because of Blockbuster’s entry into the game rental market:

Until recently, none of the larger-volume DVD rental companies offered video games. On February 11, 2009, however, Blockbuster, which hitherto had offered only movie DVDs (which GameFly does not offer), announced that Blockbuster was expanding its DVD rental service to include video games in the second quarter of 2009.

As a result of this initiative, GameFly now faces direct competition from a rival that is larger and longer established—and which, because of the preferential treatment given by the Postal Service, enjoys a substantial cost advantage in the distribution of its DVDs to consumers.

The company says it has attempted to work out an agreement with the Postal Service, but that the USPS has ignored its requests to discuss the issue.