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."
They only said that for your initial shipment. Of course even if they said it universally throttling towards the ends of the month is still going to leave your disks usually shipped with one day turn-around. "Usually" is a very important word, if 10 out of 17 disks get turned around in one day that's "usually". They didn't advertise anything other than their giving, a large movie selection, a convenient way to rent movies, a flat monthly fee for rentals, and the ability to get a lot more movies in a month with that fee than you can with the same amount of money at 90% of the brick-and-mortal rental places. Those are the ads, and that's what you get, if that's not good enough for you it's your money, me I like it, I get as many movies as a I want they have a better selection than Block Buster and I wouldn't use the "free" in store because Block Busters are nasty places filled with annoying employees.
Listen, I'll try this one more time, for posterity, and then we'll call it quits. Yes, there is a functional limit to everything, OK. So what? That's not what is being discussed here. We're talking about a deliberate undisclosed slowdown of service, breaking the terms of the contract, resulting in false advertising (so as not to lose customers). This is the lowest type of business practice and it is, plainly speaking, unfair. Apparently your mind was unchanged, but please try at least to do something with your underwear.
they use the one-day turn-around claim all over their website. you have to really go into the fine print to find out about the throttling.
they never really level (and i just checked their site) about delaying shipments to limit rentals--they pretend that it is because of high demand for certain movies and distance to distribution centers.
i don't think they are coming clean even now.
there is something wrong with his whole logic on this. he is responding in the way that an attorney does, by somehow missing the point that we are all making and responding to other issues entirely. (i remember seeing Bill Clinton do this on tv.)
when someone keeps responding to a point other than the one that is being made, i begin to suspect it is not true misunderstanding, but something else. either he is currently doing something similar (or worse) in his own business, or he is an attorney who works for a business that engages in such practices. (or maybe he is the attorney for netflix).
unethical is unethical, but i guess in his mind it depends on what we mean by the word "is".
i guess you didn't read my terms of service--i bill you for each post that you make to me and for each post that i make to you.
all businesses do this, as you say, so you can send me a check for $100. i hope i don't have to put a lien on your house.
does this sound fair to you?
you are defending a similar practice.
It seems to me that they should just put a limit on monthly rentals.
Howard Johnsons used to do this on all-you-can-eat nights. The food came a little slower each time.
they actually do put a limit on monthly rentals; they just don't want to admit it, because not as many people would sign up.
it's like "free" health care: you get promised one thing, but they put in hidden limits.
You are absolutely correct, Dr. I was starting to suspect I was discussing matters with the CEO of Netflix. Good call, doc.
It's not undisclosed, it's in the terms of service. And resorting to ad hominems again just proves you've got no facts to back you. I doubt you'll call it quits, the childish petty insulting people are never grown up enough to walk away.
All the one day stuff is about the first run, there's nothing I found saying anything about the continuing returns. Your first batch should be there the next day, they say that over and over, and that's it.
Actually they come very clean:
In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service. As a result, those subscribers who receive the most movies may experience that (i) the shipment of their next available DVD occurs at least one business day following return of their previously viewed movie, (ii) delivery takes longer, as the shipments may not be processed from their local distribution center and (iii) they receive movies lower in their queue more often than our other subscribers.
It's pretty straight forward for leagalese. It's all there and easy to understand
No I'm not. I'm defending a simple and logical business practice which is spelled out clearly and easily, and if you didn't read it before you signed up that's not my problem.
No actually I'm responding like a software QA person who's worked on a lot of different software intended to be used by a lot of different types of businesses and has sat down and thought some things through on various business types and what they need to do to run profitably and with maximal customer satisfaction. I'm responding to the closest thing to a point you guys have, unfortunately you really don't have one. Basically you think Netflix should cowtow to the type of customer you were and it turns out they've chose to cowtow to the exact opposite type of customer, who are probably a much higher percentage and are certainly more profitable. It all makes sense to me, it's plainly obvious that given the business they're in they'd do this kind of prioritizing, it's the only smart way to run this business.
That's not a limit, it's just a slow down. They don't stop sending you movies after you've reached a certain threshhold, they just move you to the back of the pack. You'll still get movies you just might wait an extra day or so.
Nope, terrible call, nothing but a sad sack logical fallacy, attempting to poison the well when unable or unwilling to deal with the facts presented. I'm just what I say I am on my about page, software tester, not a CEO of anything. One of the companies the place I work deals with a lot has offices in Los Gatos and I did see the Netflix office when I went out there for some training once, but that's about as close as I've come to working for Netflix.
You say, If you like my style of posting and would like to pay me to be a professional shill freepmail me, I'm willing to give it a shot.
I presume that Netflix contacted you.
(Yea, yea...I must be out of arguments...blah...blah)
Nobody has contacted me yet, I'd have to remove that section of my page if they did. Not being a shill, just presenting reality, some people have issues with reality.
Clearly he's been indicted for questionable business practices and is working overtime on an insanity defense.
Clearly you've got nothing. I presented the part of the terms of use from Netflix that plainly outlines the practice. Now if you don't like it that's fine but you can't say they're hiding it from people.
I just joined 3 weeks ago.Do they work on Saturday?
There are far more INFREQUENT renters than frequent renters... to refuse delivery to infrequent renters of hot movies, because folks are renting 3 every day have them would alienate a LOT more people.
This can also be handled by heavily frequent renters picking less popular or newer movies... I highly doubt if you want Casablanca, something Anime or an art film, that you are going to see your order get throttled... Of course if your rent requests are always the newest releases... you will.
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.