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."
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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."
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."
I'm glad I didn't join.
i quit netflix about a year ago because of their slowness. i had been returning the dvds to the actual post office on the return address, and it would still take netflix days to list them as returned.
i began to realize i was being ripped off, so i quit.
That is all true, but misses the point that they slowed down service IN ADDITION to priorizing certain videos of limited supply. The slow down was INDEPENDENT of the supply, and the slow down was NOT DISCLOSED and was in violation of their explicit and implicit policy. This is NOT THE SAME THING as triage-ing patients according to their immediate medical needs. So, no cigar for you. But I do wish you well. Best of luck in all of your business dealings!
BF
Get a good bit torrent client and fast Internet connection, and a video player that plays any format, and you're set.
It's like tivo in reverse.
TV Shows, Movies, Documentary, it's all there.
I currently have more than 250 Gig of video, more than 1200 videos, whole seasons of my favorite shows, all for free.
It's not "video on demand", but neither is netflix.
Netflix delivers in 24 hours for a fee.
Bit torrent delivers in 24 hours and it's free.
Once on your hard drive, with VLC you can take screen shots and stream the content out to others.
*busted*
No that's not what I'm arguing. I'm arguing that one of the "costumers" could actually be someone paid by a publisher to look for copyright violations, when you have a customer base of nearly 5 million like NetFlix does you have to assume that at least of few of them might be looking for you to step out of line.
Actually the vendor did explain to me how they got the Windows license, in so far as they included a copy of the manual with the MS hologram and a valid license key. Given that I work in software, in a Microsoft shop, I know how to spot a legit copy of MS software. I don't know if I'd turn in somebody who didn't, it would probably depend on if Windows Update allowed me to get patches or not, but I can tell.
A lot of it is a matter of scale. If you're running "Jim's Rentals" with a customer base of a few hundred you can probably get away with making copies because the chances of one of your customers being able to tell if your copies are illegal are slim. When you run NetFlix with a customer base of 4.6 million your chances of having a customer who knows and will turn you in go up. It's the old "one in a million shot" kind of thing, if it's a million in one shot that customer X knows how to spot pirated DVDs and will turn you in your chances are pretty good when you only have 500 customers, but when your customer base is 4.6 million the question stops being "do you have such a customer" and starts being "how many of our customers fit this profile".
You are blustering right past me. I'm saying what the customer had a right to expect given their advertising. They come up with the movies. They worry about how. Why did you think an attorney stands to get a gazillion dollars from them for not making it clear they work like a library not a newspaper.
it's interesting how many people on this thread have already cancelled netflix (including myself) because they were clearly intentionally delaying the dvds.
netflix is probably happy we all cancelled, because we were reducing their profit margin.
It's not just prioritizing videos, it's prioritizing the line. Somebody or something has to stick that DVD in the envelope and stick your address on the front and put it in the bucket to send. By the simple logic of reality that somebody or something has a limited number of units they can ship in one day, so they have to decide which customer's units should get the higher priority and therefore the highest chance for same day service and who should be at the back of the line and possibly have to wait a day.
And it is disclosed, it's in the terms of service.
It's exactly the same thing as triaging patients. You have a limited labor capacity and a quantity of labor to do that might or might not exceed your labor capacity, so you need to prioritize the labor deciding which customers need to be served first, second, third, and maybe tomorrow.
Similar experience - friends bought us a month on Netflix as a gift. I had to give them a credit card number as a 'deposit'. Over the period of the month we got six movies, all of which were filthy and two of which we too scratched to view. I cancelled before the end of the month.
Needless to say, they just started charging my card without my permission. They charged for two months and still owe me reimbursement for one.
I will never deal with them.
Kit.
back in the days of book clubs, i would get the introductory deals and quit as soon as i had ordered the minimum number of books required.
i got banned from book clubs as a result!
they were also intentionally delaying the sending out of dvds, even for dvds that were not in high demand.
i mostly rented stuff like "tales of jim bowie" and 1950's dinosaur movies, and they still delayed the mailing.
i never attempted to get any new films.
You said they should just print copies, I said that would be stupid of them because it's illegal and they'd get busted. A lawyer doesn't stand a chance of making any money because they work like a library not a newspaper because they make it clear in the terms of service that they work like a library. Explicitly outlining that they have a limited number of copies of every movie and depending on what you select you might or might not get it immediately, and now they even describe the throttling in the terms.
I can vouch for that. The only time I've had serious trouble getting something from Netflix was when I tried to get "Cowboy Bebop", first session. I've only had two occasions of bad disks. The turnaround has consistently been no more than three days from my shipping the movie back to getting the next one.
Is this news troubling at all? Yeah. I don't like to hear it. But Netflix has always worked for me and their service has been reliable for almost two years now.
No, I said they represented themselves to customers in such a way as they could come up with whatever copies is needed to fulfill "unlimited." The customer could care less how they do that. Going back to the beginning of this vicious circle, how does the customer know they don't do with Paramount and their ilk for movies what PC vendors do with Microsoft for Windows. You're a street sweeper you don't know boo about what the company you are dealing with has to do to get okays from the publishers they deal with. Nor should you have to know boo.
But was that intentional delaying or limited supply? I know when I get some of my low demand movies they take longer to get to me, when I look at the envelop I see they didn't come from the fulfillment house nearest me but came from somewhere else. It's probable for these low demand movies they don't have copies at every fulfillment center. I've been with NetFlix a long time, mostly they're fast, sometimes they're slow, sometimes one movie is slow while everything else is going fast. I don't sweat it, I have enough other entertainment options that whether I get my NetFlix movies on Friday, Saturday or Monday I'll still be fine.
I have noticed the same problem. I am allowed two at a time. I returned two DVDs in the same mailing on Monday. The nearest facility is just ten miles away. They acknowledged receipt of one the very next day, the other not until five days later. I got one replacement on Thursday, but the other will not even be shipped until Monday. It has become a pattern: they almost never have one day service. Might as well go down to one at a time.
the problem with netflix is that it attracted all the movie addicts (like myself) but couldn't make money because of our compulsion to view movies at such a high rate.
it would be like a liquor distribution company offering a fixed-price plan. they would have to screen out the alcoholics to make any money.
netflix used throttling to get us to quit.
Liar
But they didn't represent themselves like that. They outline quite explicitly that they have a limited number of copies of everything. In your queue they even included an Availability column that tells you if it's available now or after a short or long wait. So they're very upfront with the fact that it's a library lending out a predetermined number of copies, not an on-demand service making copies as necessary.
It's not the average customer I'm talking about. I'm talking about the customers that know a little more, that maybe worked for one of the distributors and can eyeball it, or maybe even "customers" that don't really exist but are fake people made by distributors to try to sting the rental services. Most of the time when a piracy ring gets busted it's because of the non-average customer who looks and says "huh, that don't look right".
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