Netflix and “Throttling”
Netflix 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.
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.