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Netflix ripping you off?

By jkaras ·
Here is a story concerning Netflix. Personally I dont use it, but I know many people who do that swear by it or just swear. What do you people think?


http://www.cnn.com/2006/US/02/10/netflix.renters.ap/index.html

Netflix sends frequent renters to the back of line

Policy designed to reduce number of films rented for monthly fee

Friday, February 10, 2006; Posted: 11:15 p.m. EST (04:15 GMT)



SAN FRANCISCO, California (AP) -- 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 a month to Villanueva's home in Warren, Michigan -- 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."

Changing the rules

Los Gatos, California-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."

The service's rapid growth supports him. 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, Michigan, 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 has 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 a 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.

Customers catch on

Because everyone pays a flat fee, Netflix makes more money from customers who watch only four or five DVDs a month. Customers who quickly return their movies 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 -- 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 also have prompted incensed customers to share their outrage in online forums such as 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."

Netflix says most subscribers check out two to 11 DVDs a month.

Growing risk

Management has acknowledged to analysts that it risks losing money on a relatively small percentage of frequent renters. And that risk has increased since Netflix reduced the price of its most popular subscription plan by $4 a 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 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."

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If I'm a less frequent user

by Dr Dij In reply to Netflix ripping you off?

I sure want my request to be higher priority than this fellow who's hogging it. Is the most fair way to allocate the disks if too many people are borrowing the same ones.

Netflix should have told users but they didn't do anything wrong by throttling.

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It's not just the unlimited-rental subscribers

by Leee In reply to If I'm a less frequent us ...

In our household we have the program with four rentals a month, with having two at any time. After about six months as subscribers, we've noticed that Netflix will drag their feet sending us out the next DVD on our queue, especially if it's close to the 21st of the month (our billing day and day our four-DVD limit resets). Sometimes - oops! - it doesn't make it there till after the 21st, so we're stuck paying the full price even if we only got three DVDs that month.

Funny how the return mailer, which sends the DVDs to a local processing facility two zip codes over, takes three or four days to find its way there when most local mail makes it in one day. I'm glad I saw the article; I thought it was just our local facility screwing up instead of a national Netflix screw-over.

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Huh?

by jkaras In reply to If I'm a less frequent us ...

Dij,
there shouldnt be any delay regardless of usage. They promise next day delivery on their movies, unlimited movies as long as you maintain your established rental limit. It isnt the consumer's fault that Netfix may or may not lose money on how much a customer uses their service. It's false advertizment, they are frauding the customer by not honoring their agreement of service. It's not due to low supplies of the product or shipping issues, it's deliberate to protect profits. There are many customers that use it semi frequent and I bet they outnumber the few uber renters. Sorry but they are wrong, plain and simple. A company needs to keep it's products stocked adequately for it's customers. No matter where you shop when you enter a business to purchase something or have work done for you, you dont except sorry we are out of something. You also dont say to your handyman, that's ok, I gave you steady business for repairs, go ahead and take care of someone else and leave me hanging.

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Running low?

by Dr Dij In reply to Huh?

I thought they might be running low on copies of movies, in which case I'd like to be able to get one vs someone who rents 15 a month

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