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Archive for Monday, February 13, 2006

Netflix prioritizes renters

DVD service popular despite ‘throttling’ its customers

February 13, 2006

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— 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.

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 that the service can send those popular flicks to new subscribers and infrequent renters.

The practice, called "throttling" by critics, means Netflix customers who pay the same price for the same service often are 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.

Netflix's revised policy now reads: "In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service."

The statement specifically warns that heavy renters are more likely to encounter shipping delays and less likely to have their top choices sent immediately.

Few customers have complained about this "fairness algorithm," Netflix CEO Reed Hastings said.

"We have unbelievably high customer satisfaction ratings," Hastings said. "Most of our customers feel like Netflix is an incredible value."

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."

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.

Comments

Bleep 8 years, 10 months ago

I just cancelled my Netflix membership a few days ago. I had noticed that I had gone from about 18 movies a month down to about 11. I had e-mailed them several times with my concerns but they were ignored. Every month I was getting these "How we doing?" e-mails from them. The e-mail would let you tell them when you recieved the movies but it wouldn't allow you to say how long ago it had been mailed to THEM.

just_another_bozo_on_this_bus 8 years, 10 months ago

Sounds l like netflix is reducing it's services in order to increase it's bottom line, but I wonder if it's just a coincident that this article has been published by a newspaper that's also in direct competition with netflix in its cable tv operations.

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