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 was assuming he was reading people's posts and responding like an attorney (i.e., by dodging the questions and answering totally different questions.)
however, he may either be answering without reading the posts or he may possibly be dyslexic. however, it is not clear which of these is the case.
I used to be on the 5 at-a-time plan from Netflix for around $30. I killed the account and then recently reapplied at the $18 a month for 3 at a time.
I have known for months that the fewer you actually receive in a month determines exactly where you go on the pick list. Since we are an infrequent user, our turn-around time is 2-3 days. It's great.
Those of you who have to wait the extra, "cry me a river". Or better yet, go rent at the always ethical BlockBluster!!!!</sarcasm>
Bwaaaahahahahahaaaa
Bump for later.
"No buffet for you!"
Not in this lifetime. Netflix will never get another dime from me. Blockbuster has my business now and if they turn out to be Netflix Lite, they'll go the way of the dodo bird too.
LOL
Heck I only live 8 miles from the nearest Blockbuster and I'm retired so, as the wife says, what in the heck else do you have to do. Drive your butt down there and pick out some movies.
Not in this lifetime. Netflix will never get another dime from me. Blockbuster has my business now and if they turn out to be Netflix Lite, they'll go the way of the dodo bird too.
LOL
Heck I only live 8 miles from the nearest Blockbuster and I'm retired so, as the wife says, what in the heck else do you have to do. Drive your butt down there and pick out some movies.
bump
If Netflix has trouble keeping an adequate stock of hot movies, it would seem that sending them to people who turn around movies quickly would be a more efficient use of resources than sending them to people who hold movies for months at a time.
Note: (1) if/when staffing is the limiting factor, serving mid-speed renters would seem the best use of resources; (2) if someone does a fast return on some movies, but keeps other movies for a much longer time, they might not be the best candidate for hot releases.
And when Block Buster charges you a late fee, that happens to be the entire price to buy the movie, because you turn it in 4 days after the due date, and they record it as a week late; you'll be back. And aren't these the guys who advertise "No More Late Fees"?
I live less than a mile from Block Buster and this company has attempted to cheat me so many times I felt like DrHogan using Netflix. I'd swear their computer was deliberately adding 2 days to the return date or the clerks were holding the returns for several days before entering them as returned.
I know for a fact something fishy was going on because I started recording my return dates and when I came into the store the next time, the store would state the prior returns were late and try to charge me even though I dropped them off 2 days early. I fought this battle 3 times with them because I couldn't stop my wife from going back there no matter how much I protested.
Thank God Netflix came along, I ready to go islamist over how mad my local Block Buster was making me.
Good luck with them. Hopefully you don't live in my area.
my "favorite" video rental place was a local Hollywood video store. they had a guy working there who apppeared to be somewhat mentally retarded, who couldn't make change, and who often got mixed up. one day, he (or another worker) logged a returned video in for one day after i actually returned it, and they charged me a late fee. when i protested to the manager, telling him that the employee made a mistake, he said, "NONE of our employees would do THAT!" and refused to credit my account.
(i quit that day.)
i finally solved the whole dvd/video rental problem by giving up on movies and going back to reading books.
I have it from Dish. Dish offers more.
I quit NF for Blockbuster. I was very happy with my service. I recently cancelled so I could put some of the $ into buying DVDs for a while, but if I sign up again, it WILL be with Blockbuster, not NF.
All I can say is that with six people in our house, we got ours watched quickly. Many of the children's DVDs are a half hour to 45 minutes.
Insulting people while talking to yourself, you got issues. I read your posts fine, here's what you said:
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.
Notice all active verb, including saying you just checked their website. I found the part of the terms of use that clearly and obviously describe the throttling. You were wrong, and it wasn't in some hard to find fine print either, just went to the bottom of the page and clicked the "Terms of Use" link (which is on the bottom of every page) and scrolled about 1/3 of the way down to the Allocation, Delivery and Return of Rented DVDs header, the text I quoted is from the second paragraph of that section. Easy to find.
Funny a guy who says he checked the website and couldn't find this accusing someone else of not really reading or being dyslexic.
But the people who turn them around less quickly are the more profitable customers. Businesses tend to favor the people that are better for the bottom line. The cycles are the big recurring cost in this game, so the customers that make fewer cycles are cheaper. Funny thing is that makes Netflix's primary goal with customers exactly the opposite of the brick and mortar places, for brick and mortar the cycles are the part that generate revenue, making you come back to return the movie and then hoping you'll decide to rent another is where they make money. When you ignore the brick and mortar place for a month they get no revenue and still incur all the costs of keeping stocked and staffed for you. When you ignore Netflix for a month they get your money and you cost them almost nothing (the amortized cost of whatever DVDs are sitting on your coffee table being it).
well, i just couldn't keep talking to that guy. it was getting too weird.
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