The
following is a postal perspective by Todd Butler, chief executive office of
Butler Mailing Services, Inc.
The views expressed are solely the author's and comments on this article may
be addressed to his attention at Todd Butler Butler Mailing Services, Inc.
800-237-7914 513-870-5060, toddb@butlermail.com
By now everyone is familiar with NetFlix and Block
Buster’s DVD rental business. As
NetFlix’s volumes have grown the Postal Service has recognized DVD rentals
as a growth area for First Class mail. NetFlix
now boasts three million subscribers. If
each subscriber turns three DVDs a month, NetFlix sends out nine
million pieces of First Class mail each month.
Since this is a rental business, NetFlix also pays for nine million
First Class return pieces each
month. It’s no wonder the
Postal Service has been working closely with Block Buster and smaller players
in developing their rental businesses.
The problem with CD/DVD mail is that the rules, designed
to ensure that mail pieces claiming discounted rates can be processed on
letter sorting machines, are useless in evaluating CD mail designs.
Most CD/DVD mailers that comply with letter processing regulations are
not compatible with letter processing equipment.
CD/DVDs are not paper and present unique processing challenges.
The USPS processing plants have learned the differences between paper
and plastic the hard way. As
marketing has pushed for more CD/DVD mail, postal operations have had to
contend with more pieces that are incompatible with their equipment.
Currently, the two largest companies presenting this non-compatible
automation mail are NetFlix and Block Buster; but they are not the only
customers with mail piece design problems.
New guidelines must be developed to ensure that CD/DVD mail, claiming
automated letter rates, is capable of being processed on USPS letter sorting
machines.
Postal operations people went to upper management and
asked for help. A
cross-functional group was tasked with developing standards for compatible
CD/DVD mail piece designs. The
primary and most pressing problem for the operations group is to be able to
automate the processing of NetFlix and Block Buster CD/DVD mail.
A very close second is to prevent other non-automation compatible
CD/DVD mailers from contaminating the automated mail stream.
This non-compatible mail shuts down processing equipment with jams,
reducing processing efficiencies and substantially increasing all of our
costs. The third pressing problem
is to eliminate mail pieces that do not securely retain the CD/DVD within the
package. The thought of CDs,
whole or broken, flying out of processing equipment is chilling and processing
plants are sweeping up ejects nightly!
On the way to making the necessary changes in mail piece
design rules, the USPS marketing and finance departments raised objections.
The simple solution was for NetFlix and Block Buster to make minor
changes in their designs so their pieces could be processed on letter sorting
equipment. The problem is that a change in design for either company
will push the weight of their mail piece over the one ounce First Class rate,
substantially increasing their costs. The
Postal Service, apparently, is unwilling to do anything that might affect the
volume of this mail. Increased
costs could do just that.
If First Class DVD mail volume is important and
compatible mail pieces weigh more than one-ounce, the next obvious solution
would be to increase the one-ounce weight limit to 1.5 ounces. This new weight variance could be available only to two-way
mailers paying both outgoing and incoming postage at the time of mail entry.
Problem solved, no increase in costs for NetFlix, Block Buster or other
customers and compatible automated mail would be mandated for postal
operations. The answer has been
that a new rate is not possible. A
second, similar option would be to look to increasing the value of all
First Class mail by establishing two First Class letter rates instead of
three. The two rates would be a
1.5 ounce rate and a 3 ounce rate with everything over 3 ounces incurring an
additional surcharge (currently $0.23 per ounce).
This adjustment would allow all mailers room for more
advertising in their packages, increasing the value and volume of First Class
mail. The Postal Service response
to this proposal was that they needed to keep the rate structure the way it
is.
How big a problem is CD/DVD mailers claiming automated
rates that can not be processed on automated letter machines?
The problem is big enough to show up on First Class mail costing
reports. It’s a big enough
problem that operations in Washington reportedly sent a directive to the field
instructing machine operators to pull all NetFlix and Block Buster DVDs from
the automated mail stream and put them into the manual mail stream.
It’s a growing problem as more and more companies market their
products and services utilizing the distribution of CD/DVDs through the Postal
Service.
In dealing with their biggest problems, the operations
group has ignored the inequities of their actions on smaller competitors in
the DVD rental market. Some of
these companies are entering compatible DVD mailers into the mail stream but
at higher postage costs. Since
these packages are more substantial (heavier) they not only require more
postage but also cost more to produce. Breakage
of CD/DVDs is another problem with CD/DVD mail.
Because of operation directives, NetFlix and Block Buster are
experiencing reduced breakage costs due to preferential (manual) processing
not provided other customers. Manual
processing is available to these customers if they are willing to pay higher
postage costs. Manual processing
of presorted mail costs an additional $0.055 each piece mailed plus an
additional $0.12 for each piece returned.
If you take the cost of manual processing times the volume of
incompatible CD/DVD mail entered into the mailstream, you either end up with a
significant amount of uncollected revenue or a significant increase in mail
processing costs… or both.
It is time for the Postal Service to ensure that policies
are in place to fairly, consistently and efficiently process this advanced
mail. There are people within the
Postal Service and mailing community that have a good grasp of what needs to
be done for seamless processing of CD/DVDs on automated letter processing
equipment. But they need a few
road blocks removed to be able to work on viable solutions.
They need support to bring customers (not just the big two), vendors,
postal operations, marketing and finance people together to generate ideas and
establish rules and policies that encourages the growth of CD/DVD mail into an
efficient profitable segment for customers and the Postal Service alike.