Netflix: Full Throttle
I use Netflix for my DVD rentals and, as other heavy users of the service have discovered, the company has a peculiar way of “rewarding” their most loyal customers. When you number of rentals per month begins to exceed the number where it’s profitable to have you as a customer, your account starts to be “throttled.”
This means that the company delays acknowledging when you return a movie, sometimes for several days. And when they do finally “receive” your last movie, they delay shipping the next one until the next day.
Also, heavy renters are sent to the back of the line when it comes to receiving the newer releases. March of the Penguins was at the top of my rental queue from the day it was released (November 29, 2005) until early February. Cinderella Man has been near the top of my queue for 90 days, The 40-Year-Old Virgin for nearly that long.
One user actually went to considerable lengths the document this variability in the level of service you receive. More information can also be found at Hackingnetflix.com.
I don’t mind the delay in receiving new releases that much, since I have plenty of films in my queue to watch, but deliberately jerking people around by delaying shipping and receiving strikes me as a sleazy game of bait-and-switch.
I understand that heavy users do cut into the bottom line, but surely that loss is offset by the customers who let moves lie fallow for a couple of weeks at a time, taking advantage of the “no late fees.” Since, according to this article, Netflix receives few complaints about this practice, it’s likely that most of their customers are not high-volume renters. The profits earned from this majority should be more than enough to subsidize the few who take maximum advantage of the service. While it’s true that Netflix has no late fee, they do appear to have an “early fee” if you consistently return your movies “too quickly.” It costs you some of the service that you paid for.
If Netflix can’t deliver truly “unlimited” rentals for the price they’re charging, they need to do one of three things:
- Raise their rates. This all seemed to start when Netflix slashed their rates as a preemptory strike against the threat of competition from Amazon. If their old rates are what they have to charge in order to deliver the service they promised when I signed up and still remained profitable, then that’s what they should charge.
- Ditch the “unlimited” angle. Start advertising that your $17.99 gets you so many rentals and that each additional one costs you a dollar or something. After that, lift the delayed shipping and long waits for new releases. It’s a more transparent, honest method of “punishing” their more active users.
- If neither of the above suggestions will work, then maybe Netflix needs to fold its tent and admit that its business model just wasn’t viable in the first place.
If you don’t watch a lot of movies than Netflix can be a great deal. If you’re like me and you also have a large collection of your own DVDs to watch when Netflix is dragging its heels, it’s still not bad. If, however, you like to watch a lot of movies and you prefer to rent rather than buy, Netflix may not be such a great deal. Unfortunately, there are few that are better. Blockbuster has exactly the same policy and fewer plan options.
There are some other options, like GreenCine, who do not throttle. They are, however, regional and if you’re not physically near their location, San Francisco in GreenCine’s case, you might as well put up with Netflix.
About the author:
Paul lives in mortal fear that, somewhere in the world, they're making another Deuce Bigalow movie.
Wow! What a great post. There’s nothing better than spotting a real problem *and* going a step further to suggest real solutions. Kudos to you.
I like suggestion #2, by the way. It seems only fair.
Random thoughts … Yes, Netflix is odd. But, you know what? I think they are just a small piece of a larger picture. Today, it seems many corporations are switching their business models.
The old model seemed to be that High Revenue Generating “Y” offsets the losses from Low Revenue Generating “X”. For example, Netflix wouldn’t care if they are losing money on say 2% of their base (high-activity users) as long as they were making money on the other 98%.
Across the board, the new model of doing business seems to be this: it’s not enough to offset your losses, you have to cut them out entirely. Maximize High Revenue Generating “Xs” and eliminate Low Revenue Generating “Ys”. It’s about making money. And, Netflix doesn’t make money off of customers who rent A LOT of movies.
So, would I be surprised if Netflix is throttling customers? No. Do I think it’s good business? Absolutely not. Not only is it deceitful, it’s short-sighted. Sooner or later, the 98% who nurse, say, 3 movies for 6 weeks at a time will realize they’re wasting their money. And, eventually, the 2% who go through 3 movies in a day (or over a quiet weekend) will get tired of getting screwed. That’s ripe territory for a competitor to take on Netflix. Just as Blockbuster was caught off guard by a stealth competitor, so shall Netflix be.
There’s also the practice of big box electronics stores of limiting returns for customers identified as returning too many items.
Then there were the credit cards who were allegedly cancelling the accounts of customers who always paid off their balances, thereby generating no finance charges and no profit for the company. Pardon us for exhibiting financial responsibility …
i’ve actually had the credit card thing happen to me. a couple of my friends were just discussing this the other day. i came up with the idea simmilar to your second proposal. netflix would keep the current prices but say you can rent up to 6 or 8 movies a month, then they’d have a higher price for the same number of movies at a time (e.g. one, two, or three at once), but with no limit on the number you can rent in a month.