Netflix and “Throttling”

netflix1.jpgNetflix allows customers to rent movies online — as many as they want. According to the company’s website:

With Netflix you can rent as many DVDs as you want from the comfort of your home and have them delivered to your door in about 1 business day! There are no late fees and no due dates, and shipping is free both ways. Plans start at $9.99 plus any applicable tax. With our most popular plan, 3 at-a-time (Unlimited), you can rent as many DVDs as you want for just $17.99 a month plus any applicable tax. You keep a revolving library of up to 3 DVDs at a time and can exchange them for new available DVDs as often as you like.

Sounds like a great deal, right? Well, if you use it really well to your advantage, Netflix will penalize you. According to the 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 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.”

Originally, Netflix kept its differential treatment of customers a secret, but after a class-action lawsuit, Netflix now warns about this in the fine print:

“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.

Is Netflix still adequately disclosing what it is doing? The “How It Works” page, where you read up about what a great deal Netflix is, makes it sound like the sky’s the limit. If you click on the FAQ on the side of that page called How fast will I get my DVDs? you will not hear even a whisper of any differential priority system. Only if you bother to read the laborious “Terms of Use” page will you discover that the sky isn’t made out of cotton candy. And unlike the “How It Works” page, which is readily accessible, the link to the “Terms of Use” page is found in the fine print at the bottom of the website.

That’s the problem with companies offering great “deals” like Netflix — they depend upon many people not really getting the maximum value of the deal. On the other hand, Netflix might not be profitable if too many people rented too many videos.

But why not just be honest and call a spade a spade? Netflix could just come clean and say on its “How It Works” page: “The more videos you order in a month, the harder we’ll make it for you to order more.” Perhaps it could even be more blunt: “Order as many videos as you want, but if you order a lot, we’ll treat you like crap.” But if it said that, the marketing department would be up in arms. After all, to hook in the customers, it’s better to promise that the “sky’s the limit.” Most customers won’t reach for the sky, but they’ll like feeling that they could if they wanted to. For those that try, treat them like crap, try to get rid of them . . . they’re not profitable.

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7 Responses

  1. ac says:

    The same problem applies to “unlimited” Internet service. Try using your cable or DSL Internet access to download more than a few gigabytes a month. What makes it more frustrating is a readily available standard to describe exactly how unlimited the service is:

  2. dan says:

    fascinating stuff, Dan. I’m very disappointed to discover this information. I wonder if there are other providers who don’t have this hidden “if you like us too much, we’ll treat you like crap” policy.

  3. pond says:

    The TOS page and their offering page should read instead, “All the dvds you want (up to X each month)”

    This would actually help NetFlix keep movie-lovers happy, and let us better judge differences in the different levels of plans.

    The ‘3 out’ plan seems to top off about 12, 13 dvds per month, for example. That’s not a bad deal, since rentals work out to about $1.50 per rental, and you don’t have to drive to the video store to take out and return them. But where does the ‘5 out’ plan top off? Would that work out to less than $1.50, or more? If Netflix just came clean with us, then we could make more informed decisions. And if Netflix worked it so that the ‘5 out’ plan topped off at $1.25 per rental, say — then we’d have incentives to pay Netflix the $25/month rentals.

  4. Bruce says:

    Burying an important and material disclaimer about what “unlimited” means in fine print doesn’t seem consistent with FTC policy on disclosures:

    In reviewing their online ads, advertisers should adopt the perspective of a reasonable consumer. They also should assume that consumers don’t read an entire Web site, just as they don’t read every word on a printed page. In addition, it is important for advertisers to draw attention to the disclosure. Making the disclosure available somewhere in the ad so that consumers who are looking for the information might find it doesn’t meet the clear and conspicuous standard.

  5. West says:

    AC, that standard has absolutely nothing to do with how much you download each month. That is not to say that your service provider may be using some other algorithm to limit your overall bandidth usage, but leaky bucket algorithms have do do with rate limiting over fractions of a second to a second or two, not minutes, hours or months.

  6. David Rodrigues says:

    I have rent 8 at a time with netflix and for a while things was good but now forget it i mean I wait days for my movies to come in sometimes 4 days and when i rent movie series that has 24 episodes on them ranged from 3 disc to 8 on them netflix used to send disk 1 threw 8 in order so when i recieved them i can watch episodes in order but lately netflix sends all episodes except for disk 3 and netflix knows i cant watch other ones without watching disk3 whats point in watching melrose place season one and watching episodes out of order makes no sense and still after week i still waiting for disk3 and reported it already. I cant watch the rest of melrose place unless i get disk3 and then watch rest. So sick of there throttleing i might well cancel my account and make another email and start over and do that 3 times a year so that way it fools there pc on putting me on the secretive throttleing service. This almost like racism where certain race gets better treatment than the other its almost like that in terms of movies instead.

  7. David Rodrigues says:

    Whats the point in saving all wanted films in queaue thing if netflix doesnt go in order specially on tv series i mean they will go in order for people not on throttling list but after a while they send disk3 instead of 1 and 2 first i mean they hold bakc few disk and say its been shipped but in reality it still at there place. Lairs just say theres a damn limit and stop secretly treating our badly my god this feels like Soviet Union or KBG or somthing like that. NETFLIX actually owned but putin!!! who knows. This is somthing communist would do i mean thats there style of doing things