Regular visitors know that a little less than two months ago I signed up with NetFlix. And for the most part, I'd say my expectations have been met. But silly clueless me wasn't aware at the time that the online DVD rental service was being sued by its customers for a practice known as "throttling" - delaying shipping of DVDs for frequent users.

On Monday, a settlement was announced in the class-action suit that bought off a huge number of plaintiffs by giving them one free month of service. This of course means that NetFlix is free to continue "throttling" customers just as long as they are "upfront" about it by burying it in their terms and conditions list.

This guy does a good overview of the situation. And here is a site that chronicles the trials and tribulations of Netflix. In a nutshell, here's the issue. The most popular NetFlix plan is $17.99 per month for "unlimited" DVDs - three at a time. The company figures that if a member gets nine DVDs during a given month then that works out to about $2.00 per title - an acceptable cost/benefit ratio for their bottom line. Any more than nine DVDs, however, and the number goes under $2.00 per title. If a member gets as many as fifteen that means NetFlix only earns $1.20 for each DVD that goes out the door (less than the total $1.56 shipping cost - .78 cents each way - to and from the member's mailing address).

So what's a poor little company to do? Well, first they can not acknowledge that they're received the DVD for an extra day or two. Then they can "process" it so late in the day that it takes two (or more) days to deliver your next DVD in queue. And on top of that, they can send the DVD from a distribution center farther away than they normally would. All of these activities can add up to stretch out the turnaround time. And it's all kept track by a computer system rather than live people. So it's nothing personal, right? And if the DVD in question is damaged or they send the wrong one it gets even worse.

Now the average person is not likely to go through so many DVDs in a given month, but it so happens that I'm watching all the past seasons of "24". Theoretically, I can get a four episode disc, watch all of the episodes in one night (though usually it's over two or three nights), and return it the next day.

NetFlix doesn't like that. I've already been living the consequences of fast viewing. A little less than two weeks ago, the last disc from the season that I was watching took a week to deliver. Screw that, I went to Blockbuster and picked up a copy.

***Update***
First thing this morning, I got a notification that they received a DVD that I had sent back and that they expected to ship the next title in queue today. Guess what? A few hours later, I was notified that it would ship Thursday (tomorrow) instead. Why the sudden change? I have a theory. Later this morning, they probably also received the one I mailed out Saturday morning, which set off bells and whistles and bumped the release of my next DVD. Not that they've acknowledged receiving the other one. I'll probably get a notice about that one tomorrow and it'll probably ship Friday at the earliest. See how this works?

The reason I suspect that they received the other one (but aren't telling me) is that it took three business days for me to get it in the first place (shipped Tuesday the 25th and received Friday the 28th). When you return a DVD, it goes back to the same distribution center it came from so it should take three days for NetFlix to get it back, no? Well, after watching it on Friday night, I mailed it early on Saturday the 29th at the post office and here we are three business days later - May 3rd. Coincidence? Hmmm.
***End Update***

***Update II (5/4/06)***
Ha! I knew it. First thing this morning, NetFlix notifies me they received the one I sent Saturday morning. If it really came in this morning, they wouldn't normally notify me until after 10:30am at the earliest - which means they probably had it in their hands yesterday, just as I figured. They say they'll ship the next title today. How much you want to bet they don't?

Oh and they keep dangling this extortion offer in front of me that tries to prod me into upgrading to the four-a-month plan: "Get another movie for only $3.39 and we'll send it Thursday". Why don't they just come out and say, "hey, we know you're desperate for us to get you that next title, so c'mon pay us a little more and you can have your precious "24" disc tomorrow. You know you want to"? The four-a-month plan is $23.99, six dollars more a month. If I'm that desperate to get that one extra disc sooner, I'd rather pay $4.75 to Blockbuster and have it today. Nice try, guys.
***End Update II***

NetFlix CEO Reed Hastings has got you right where he wants you - bent over.

So why am I bitching? Why don't I just cancel NetFlix and go with another service. Well, two reasons. First, it won't be long before I'm finished with "24" and I'll be going back to a "normal" pace for getting DVDs. Second, the competition isn't much better. All of them, except for GreenCine.com, resort to the "throttling" process and most have plenty of service complaints against them from dissatisfied members. While GreenCine promises not to "throttle" their customers, their selection is a lot smaller, the monthly fee higher and they admit that their turnaround for East Coast customers is slower than for West Coast customers.

Now I understand if you have a start-up operation (NetFlix began in 1999) and you're struggling to stay afloat until you get the necessary volume. But NetFlix pulled in $42 million in net profit last year. Far be it from me to criticize an enterprise for making money, that's the point isn't it? But it's bad business to increase profits at the expense of satisfied customers. NetFlix better be careful because they're in danger of losing a lot of good will that they've built up over the years. One of the reasons they are getting closer to reaching their goal of five million members is because of all the free advertising they get from people who sign up and get the royal treatment during the two-week free trial period.

But if they keep this crap up, a lot of people - myself included - are going to jump to other services and bad-mouth NetFlix to anyone who'll listen (or read). They may have pioneered the process, but it's not rocket science as to how they're able to do what they do. And the competition is only going to get tougher. Can you say digital downloads?

Posted by: Gary at 10:45 AM | No Comments | Add Comment
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