1) First class mail (cheaper than media mail packages for bare DVDs) with likely letter-carrier presorting, volume and whatever other postal discounts (hence hiring former Postmaster Generals) were available, plus an agreement with the Post Ofice to manually sort DVDs to avoid machine damage using their light-weight mailer:
"Bulk Discounts. First-Class Mail commercial pricing is available for presorted letters, flats, and packages with a minimum quantity of 500 mailpieces. Automation discounts may also apply."
Also, if you get a tour of a main post office or sorting facility, you will see bins labelled "Netflix", so DVDs get special handling and slightly faster return delivery.
2) Because Netflix was the first adopter of #1 for DVD's, they won a ruling that they could continue to use First Class pricing. (The Post Office tried to move them to media mail which allows better packaging (at much higher cost) for automated handling, but that was viewed as anti-competitive by the court.)
For HN readers, I believe this is the first detailed analysis of both their postage pricing strategy and first-sale doctrine in one article, likely because few people know about both bulk mail and IP.
