Posted on 02/11/2006 5:52:44 AM PST by yankeedame
Updated: 03:15 AM EST
Netflix Presses Pause for Heavy DVD Renters 'Throttling' Practice Delays Shipments, Gives Preference to Infrequent Renters
By MICHAEL LIEDTKE, AP
SAN FRANCISCO (Feb. 11) - Manuel Villanueva realizes he has been getting a pretty good deal since he signed up for Netflix Inc.'s online DVD rental service 2 1/2 years ago, but he still feels shortchanged. That's because the $17.99 monthly fee that he pays to rent up to three DVDs at a time would amount to an even bigger bargain if the company didn't penalize him for returning his movies so quickly.
Carlos Osorio, AP
Netflix subscriber Manuel Villanueva typically receives about 13 movies per month
-- down from the 18 to 22 DVDs he once received before being identified as a heavy renter.
=================================
Netflix typically sends about 13 movies per month to Villanueva's home in Warren, Mich. - down from the 18 to 22 DVDs he once received before the company's automated system identified him as a heavy renter and began delaying his shipments to protect its profits.
The same Netflix formula also shoves Villanueva to the back of the line for the most-wanted DVDs, so the service can send those popular flicks to new subscribers and infrequent renters.
The little-known practice, called "throttling" by critics, means Netflix customers who pay the same price for the same service are often treated differently, depending on their rental patterns.
"I wouldn't have a problem with it if they didn't advertise 'unlimited rentals,'" Villanueva said. "The fact is that they go out of their way to make sure you don't go over whatever secret limit they have set up for your account."
Los Gatos, Calif.-based Netflix didn't publicly acknowledge it differentiates among customers until revising its "terms of use" in January 2005 - four months after a San Francisco subscriber filed a class-action lawsuit alleging that the company had deceptively promised one-day delivery of most DVDs.
"In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service," Netflix's revised policy now reads. The statement specifically warns that heavy renters are more likely to encounter shipping delays and less likely to immediately be sent their top choices.
Few customers have complained about this "fairness algorithm," according to Netflix CEO Reed Hastings.
"We have unbelievably high customer satisfaction ratings," Hastings said during a recent interview. "Most of our customers feel like Netflix is an incredible value."
Netflix
Displays latest trading session. See more charts.
Stock Quote: NFLX Profile: About NetFlix Talk About It: Company Buzz Headlines: More NetFlix News
The service's rapid growth supports his thesis. Netflix added nearly 1.6 million customers last year, giving it 4.2 million subscribers through December. During the final three months of 2005, just 4 percent of its customers canceled the service, the lowest rate in the company's six-year history.
After collecting consumer opinions about the Web's 40 largest retailers last year, Ann Arbor, Mich., research firm ForeSeeResults rated Netflix as "the cream of the crop in customer satisfaction."
Once considered a passing fancy, Netflix has changed the way many households rent movies and spawned several copycats, including a mail service from Blockbuster Inc.
Netflix's most popular rental plan lets subscribers check out up to three DVDs at a time for $17.99 per month. After watching a movie, customers return the DVD in a postage-paid envelope. Netflix then sends out the next available DVD on the customer's online wish list.
Because everyone pays a flat fee, Netflix makes more money from customers who only watch four or five DVDs per month. Customers who quickly return their movies in order to get more erode the company's profit margin because each DVD sent out and returned costs 78 cents in postage alone.
Although Netflix consistently promoted its service as the DVD equivalent of an all-you-can eat smorgasbord, some heavy renters began to suspect they were being treated differently two or three years ago.
To prove the point, one customer even set up a Web site - http://www.dvd-rent-test.dreamhost.com - to show that the service listed different wait times for DVDs requested by subscribers living in the same household.
Netflix's throttling techniques have also prompted incensed customers to share their outrage in online forums such as http://www.hackingnetflix.com.
"Netflix isn't well within its rights to throttle users," complained a customer identified as "annoyed" in a posting on the site. "They say unlimited rentals. They are liars."
Hastings said the company has no specified limit on rentals, but "'unlimited' doesn't mean you should expect to get 10,000 a month."
In its terms of use, Netflix says most subscribers check out two to 11 DVDs per month.
Management has previously acknowledged to analysts that it risks losing money on a relatively small percentage of frequent renters. The risk has increased since Netflix reduced the price of its most popular subscription plan by $4 per month in 2004 and the U.S. Postal Service recently raised first-class mailing costs by 2 cents.
Netflix's approach has paid off so far. The company has been profitable in each of the past three years, a trend its management expects to continue in 2006 with projected earnings of at least $29 million on revenue of $960 million. Netflix's stock price has more than tripled since its 2002 initial public offering.
A September 2004 lawsuit cast a spotlight on the throttling issue. The complaint, filed by Frank Chavez on behalf of all Netflix subscribers before Jan. 15, 2005, said the company had developed a sophisticated formula to slow down DVD deliveries to frequent renters and ensure quicker shipments of the most popular movies to its infrequent - and most profitable - renters to keep them happy.
Netflix denied the allegations, but eventually revised its terms of use to acknowledge its different treatment of frequent renters.
Without acknowledging wrongdoing, the company agreed to provide a one-month rental upgrade and pay Chavez's attorneys $2.5 million, but the settlement sparked protests that prompted the two sides to reconsider. A hearing on a revised settlement proposal is scheduled for Feb. 22 in San Francisco Superior Court.
Netflix subscribers such as Nathaniel Irons didn't believe the company was purposely delaying some DVD shipments until he read the revised terms of use.
Irons, 28, of Seattle, has no plans to cancel his service because he figures he is still getting a good value from the eight movies he typically receives each month.
"My own personal experience has not been bad," he said, "but (the throttling) is certainly annoying when it happens."
No. From blockbuster you can chose from 3 out at a time, 5, or 8 out at a time. With Netflix, you can choose 3, 4, 5, 6, 7, or 8 out at a time. The higher the number of discs out, the more the plan costs.
Does BB offer a lot of choices in Widescreen?
No. Everybody is targeted by it. I was on the 3 out plan and was getting 22-24 a month. (and I wasnt burning them. I was watching them). I liked the service so much, that I changed my plan to 4 at a time, thinking that I would be getting 26-32 a month. Instead, I watched the number of DVDs I was getting drop to around 16 a month. I wound up paying more money to receive fewer DVDS.
Yes. As a matter of fact, at Blockbuster you can find alot of "Special Edition" DVDs that you wont find at Netflix.
BB was slow to adopt and at first when DVD was launching the format would only offer full frame which was detrimental to the format. Honestly, just cause of that alone would never really consider spending one penny at BB.
My problem with Netflix is that we seem to keep them too long so it doesn't really pencil out anywhere close to it's full potential value. Seeing this thread prompted me to toss our three movies into the mailbox, so they will go out Monday and I'll more than likely have another batch Wednesday. But they have been sitting here for weeks. And last year I gutted the front of the house and had our home theater stuff stored in the garage while I put in new flooring by myself as time permitted, and the Netflix batch we had on hand sat in the garage for like three months, and we probably didn't get more than two dozen movies all year with all the other stuff going on eating up our time.
Now I need to go back to the website and update our movie list. My wife puts stuff on there like Roseanne and ALF reruns (dunno why because that stuff seems to be on all day on channel 53 or whatever it is) so I have to go in behind her and do a little "throttling" of my own to get something I want to watch in the mix. I suppose she doesn't like it opening the mailbox expecting ALF and seeing something like Animatrix in there, but I ask you which is more cool? Besides, the 5.1 surround is there for a reason and that reason is not to make is sound as though Roseanne's voice is coming from all four corners of the room.
I'm on it. But they do have an 8 movie plan and even a 2 movie plan. So it's not like there's no choice at netflix.
with tax or whatever the 5 at a time actually runs me about $32
thank you! sheesh
But the MPAA thanks you for drinking their KoolAide.
Assuming this is the case, then "my bad, I apologize."
But please note, I never, ever asserted that Netflix, etc. "SHOULD" violate their agreements with the movie publishers, or any other law.
LOL! You still insist that bait and switch tactics are OK if it increases "profitability." Any scandal is OK by those rules, as they all tend to increase profitability, even one that suckers you out of house and home. Keep throwing that flubbering overweight flacid mud-wrestler (i.e., your brain) into the ring with adults and he's gonna talk alot of nonsense in public. Time to recall that ambassador of poppycock back into your skull for another annual consultation, eh?
I mistated on that.
You're right. Same with me. I have to stick with Blockbuster. Maybe there's a strategy where you put the movies you want at the bottom of your list so you get them faster. Just kidding, I think.
Where's the bait and switch? Simple logic tells you that there is a functional limit to the number of DVDs you can get in a month. All the "unlimited" means is they aren't cutting you off at a certain point, which they aren't, slowing you down isn't cutting you off. The only thing they screwed up on was they didn't put it in the terms of service. When I signed up for NetFlix in 2001 I assumed they would do something like this, it simply made sense to protect their margins.
And as for all your other ad hominems, sad sad sad. Nothing tells people you know the facts don't back you up like resorting to insults.
And by "on that" I mean the copying thing. The availability has been there since I started.
in their old ads, they emphasized the fast turn-around (they said something like 'usually a one day turn-around').
by emphsizing the fast turnaround, and then intentionally delaying the turn around, they were providing a lower-level of service than they were advertising.
in New York we would call that a "rip off".
i quit netflix, and i wouldn't deal with them again.
i do that with any company that advertises one thing and provides something else.
i think you made the point very well.
companies can do whatever they want if it is legal. but netflix was clearly violating the deal that they were offering.
any business that operates like that will eventually run into some bad press and law suits.
*snort* I can't stand Roseanne!
We tend to keep them for a while sometimes, then go through a bunch all at once. It's great for those movies about which you're not quite sure, so if it's a real DOG, you can send it right back and get something else, and you haven't wasted $6 for the rental.
Our son rented a movie while he was here during Christmas; the timing wasn't going to work with Netflix. It was Run, Lola, Run. It was quite strange, but very interesting. It's in German with English subtitles.
No Netflix has other plans for more money to let you have more than 3 movies at one time. Here they are:
The standard plan is unlimited rentals with 3 movies out at-a-time. Available plans include:
8 at-a-time (Unlimited) - just $47.99 a month
7 at-a-time (Unlimited) - just $41.99 a month
6 at-a-time (Unlimited) - just $35.99 a month
5 at-a-time (Unlimited) - just $29.99 a month
4 at-a-time (Unlimited) - just $23.99 a month
3 at-a-time (Unlimited) - just $17.99 a month
2 at-a-time (Unlimited) - just $14.99 a month
2 at-a-time (4 a month) - just $11.99 a month
1 at-a-time (Unlimited) - just $9.99 a month
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.