Skip to comments.Netflix 'Throttling' Heavy DVD Renters: Gives Preference to Infrequent Renters
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."
"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."
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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."
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.
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.
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."
Or like me. Sometimes I'd get three movies, watch 20 minutes of two of them, decide that they sucked, watch the third one completely, and return them all the next day. They haven't been terrible with me, as I get a fairly good number of releases that are "short wait" or "long wait," but in the past year, they have started to delay shipments by a day. Or they'll send an envelope with a return address for Netflix outside of my city, so it takes 2-3 days to get returned.
NetFlix isn't whining, this guy is whining. NetFlix is just handling a business situation.
They are fulfilling their legal obligation. Their job is to send movies, they do that. Somebody is always going to have to be at the back of the line, it's the nature of lines, nothing illegal about coming up with a method to deliberately pick who goes there.
I'm sure you have that same attitude in the hospital emergency room. You don't intentionally withold services someone paid for to maximize your profits. You will learn that lesson, as old as you already are, one day.
I can only tell you how I felt when I used Netflix ... which I would still recommend. It's a good company.
But you join. You get your movies right away, you pop them in the mail. They send out a new movie and this goes on for months.
THEN, without any warning, they institute a new method of mailing. You send the movie back, they receive it and now they wait 24 hours to send the next movie. This now is the new routine on all movies. The whole return method is altered.
It unnerved me as I had ogtten used to the old rhythm of receiving-watching-mailing-receiving-etc. Now they inject an extra 24 hour cycle.
I cancelled as a result. But I still recommend the service as they are quite reliable.
Bump for later.
Here's the current plan offerings (I just recently joined and have not been throttled (yet):
8 at-a-time (Unlimited) for $47.99
7 at-a-time (Unlimited) for $41.99
6 at-a-time (Unlimited) for $35.99
5 at-a-time (Unlimited) for $29.99
4 at-a-time (Unlimited) for $23.99
3 at-a-time (Unlimited) for $17.99
2 at-a-time (Unlimited) for $14.99
2 at-a-time (4 a month) for $11.99
1 at-a-time (Unlimited) for $9.99
Netflix has a distribution center not far from where I live and so far I've gotten my movies on the third business day from when I mailed them back.
I'm renting mostly foreign and offbeat films so maybe I won't be slowed down as much as some. I also don't have time to watch all the films I could (even if they would let me).
I can definitely recommend Netflix for the incredible library of foreign films that can no longer be found at the local Blockbuster. Not to mention the fact that I paid $10 for TWO movies at BB not long ago. I finally decided to ditch that and try the 3 Unlimited for $18mo. at NF.
(Also, they have all of the Criterion Collection foreign films. These cost about $40 to buy!)
Did their old service agreement say squat about queues in some asterisked fine print about "Unlimited"? One might have the impression that they could copy up whatever they needed.
Actually I do, I recognize that there's more people needing service than doctors most of the time so they need to prioritize service based on the immediate need. People who are bleeding profusely or can't breeth go first in the emergency room, the lower a person's risk of immediate death the further down the list they go. I spent a lot of time in emergency rooms in the end of 2004, I learned their ordering method very well.
They're not withholding service, they're prioritizing service. Whoever winds up at the back of the line when the day's returns come in will probably wind up waiting a day to get their movie, that's just how it is. All NetFlix has done was come up with an algorhythm to deliberately decide who's in the back of the line instead of letting it be completely random. There's absolutely nothing wrong with that.
I've been with NetFlix for over 4 years, maybe even 5 by now. I don't see a problem with it, yeah sometimes things start lagging pretty bad, but I think I get my biggest lag from getting wierd stuff that they probably don't have copies of in every fulfillment center.
I once signed up for Netflix as a "trial" and then cancelled on time. They kept charging me for months and no matter how many emails I sent and got back from them saying "Membership Cancelled", I would still get charged. Finally they refunded me my fees after I threatenfded them with legal action. The day after they did this, I called my bank and reported my card lost. To this day, I still receive emails from NetTrick stating "Your credit card info needs to be updated so we can continue you membership..."
I find it more fun going throught a Walmart DVD bin that renting from these jerks.
They don't make copies, that would be illegal and the publishing companies hate rental companies enuogh as it is.
How is that any of the customer's business. For all Joe Customer knows they license the rights from the movie publishers.
It might be better if they disclose this policy. I think most people believe they will be in a line in the order they joined. If I go to the theater I expect to enter right after the person standing in front of me and just before the person in back of me.
If I knew before getting in line that preferences were going to be applied ... like all Romanians get to go first and all Spaniards have to go last, I'm going to want to know in advance.
As I say I like Netflix since it had movies I couldn't get anywhere else. But their service changed.
I haven't noticed any change in our service, but then we live in the next town over from one of the distribution centers! ;o) We usually send a movie back, then two days later, get a new one. We haven't been sending them back that frequently lately, though. Just haven't had the chance to watch too many movies. But we love the service, and have been customers since around Oct. of 2000!
I remember way back when I was on dial-up. "Unlimited Internet!"
- - - - - - - -
Have you heard about that new satellite and cable TV that they have now? There are no commercials on it; no paid programs, just movies and great features, uninterrupted viewing.... /sarcasm off
I think you just answered my question ... they do disclose. In which case the person signing up knows and should be okay with it.
But the problem is what if one of the customers happens to work for Fox and happens to notice the Spiderman DVD he got from Netflix doesn't match the ones in the posters around the office? What if Fox deliberately has employees renting from various services looking for this kind of thing? Knowing that the publishers have been wanting to put the renters out of business since day one it's just not worth the risk for the renter to do anything that violates the copy right.
You are trying to argue that "of course" the customer knows these mail rental houses can't crank out discs as needed. And I'm saying that if the customers aren't specifically told, they have no reason to believe otherwise. The vendor of the PC you're working on didn't explain how he got his Windows license from Microsoft, or what the terms were, did he? You just trust him that he did get it.