AP Story on Netflix Throttling

PittsburghLIVE.com has a story about Netflix's policy to allocate movies based on a customer's rental volume (also known as "throttling" or "smoothing"), Netflix sends Frequent Renters to the Back of the Line.

"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 his thesis. 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.

So, does anyone want to comment on the story? :-)

via the Netflix Fan blog.

Comments

Hastings is a lying sack of CRAP! "throttling" is the #1 complaint from NTFLX customers! what an assjack Hastings is. i can't wait until NTFLX goes out of business.

Throttling may be Netflix's #1 complaint, as well it probably should be. I assume that the heaviest users are paying more for the service, so I can't see why they should be penalized.

Given that Netflix is not going to make an inventory adjustment, and were they to "level the playing field" so that one group was not throttled more than any other, then every customer would share equally in the throttling. I'm not saying that this is a good solution, but at least no group gets preferred treatment at the expense of others.

No matter what method they use, I won't be holding my breath waiting for them to go out of business. They appear to have a successful business model in spite of its shortcomings.

[Banned]

[Comment from bannned reader deleted. - Mike]

[Andrew Wickliffe]

However bad Netflix is... Blockbuster is infinite times worse...

I have positions 1-7 with "available now" in my Blockbuster queue and they're shipping items starting around 10.

Since Blockbuster actually responds to complaints, they tell me it's to insure my satisfaction.

I for one think NetFlix is an incredible value, largely for the convenience, but also because it's pretty inexpensive. Sure, RedBox or dollar tuesdays are less expensive, but the combination of convenience and price can't be beat.

I also think their allocation system is fair. Low volume customers are getting less for their money, and VIP treatment helps even things out.

[Sych0]

I don't understand why "throttling" is unfair. I've rented jeez... over 700 movies since i first joined in 2001.

If i were a business, who would i be more apt to lose? A guy whos rented over 700 and is waiting for his favorite movie, or a guy whos rented 20 and is waiting for his favorite movie?

I just dont get it. If you have 100 movies in your queue, so what if you have to wait for Big Mommas House 2.

[Sych0]

Adding:

Especially since they only have X number of dvds.

[Rick H]

Churn was 4% per month, not for the quarter.

[Nicholas Barnard]

I just relish the fact that while it is an article that Manuel is featured in, the web link comes here.

My GOD manuel has got into a paper

[Michael]

People who complain of not being able to receive new releases simply should not use Netflix. In order to effectively use Netflix, you must change at least 2 things about your renting habits.

First, you have to realize that there are thousands of terrific movies that hardly see the light of day in the U.S., and so you should try renting outside your safety zone of American New Releases.

Second, if you rent popular movies you shouldn’t anticipate the exact movies you receive each week. Rather you should keep roughly 5-7 dvds that you really want to see at the top of your queue, so that if one isn’t immediately available you will still get something you like.

Of course #2 works best when you have accepted #1 so that you have a nice diversified queue to deal with.

I went into Netflix already expecting all of this. In order to get the service some people are expecting Netflix would need roughly 4.2 million copies of each dvd for their 4.2 million subscribers.

And let's be a little honest with ourselves for a moment. We should know that ~ 90% of the people complaining of throttling are burning the dvds as they come and sending them back out the same day. Why should Netflix cater to this?

I am subscribed to the 3 dvds at a time (for over a year), and I receive exactly one shipment every week, so roughly 13 dvds a month. That comes to $1.46 for each dvd, which if I remember correctly is much better than Blockbuster, not even factoring in the convenience or better selection. That is also with me returning dvds relatively quickly.

No churn was 4% for the quarter

The reason why I stopped going to Blockbuster (I pass by two of their stores on my way home from work every day) was because I had to wait a week or two to get new releases because they didn't stock enough.

Now, I'm using NetFlix and have had Flight Plan on my list since it was on the "saved" list.

It still cites "very long wait" as to the avaialability, yet a woman who works with me, who does not return movies very often, received it the day it was released.

Also, the top 5 movies on my list either state "very long wait" or "short wait" as to availability.

I'm seriously considering going back to BB. I go by 2 of the stores on my way home from work, I won't have to worry about the stupid envelopes tearing up or being lost in the mail (oddly enough, never had that problem until I started returning more often...hmmm), and at least when I have to wait for new releases at Blockbuster, it's because people just got to the store before I did, not because they pick and choose who gets them.

[RAYMOND KNIGHT]

I am getting so tired of NETFLIX's allocation policy. They now seem to frequently lose my DVDs. It takes three days to travel 20 miles to their PO BOX. It has been weeks since I received a DVD that was sent out on Monday and received on Tuesday. The two DVDs that I sent back on Wednesday have yet to be logged in. Mr. Hastings has lied his way through a court trail which I hope the settlement will fall apart as it appears to be doing.

[Ed]

I've actually noticed that my throttling has stopped recently. Between Tuesday of this week and last week I received 3 movies that released on the day they arrived in my mailbox. I think that it was due to my low rental activity around Christmas. I'm also pretty sure that a heavy volume renter has 2 options: get the maximum number of discs per month that you get throttled to on your current plan (probably a 3-out plan), or move up to a higher volume plan.

[Laddy]

Since I switched to BB I've been happy. I get my dvds overnight and they get back in 1 to 2 days. I send them back on Saturdays and they ship back to me on Tuesdays 90% of the time. So I'm basically getting 12 dvds per month. Do I always get the new releases highest on my list? No, but I usually get some of them. BB does go down the list ignoring higher prioritized dvds from time to time. Customer service explained they do this when requested titles are not in stock at the nearest distro center. This is to increase customer satisfaction they say. Whether 'tis true or not, I don't know. I explained to them the ranking system loses meaning if ignored. They agreed but didn't have a solution. The higher rated items in my case were TV series dvds so it's entirely possible they were not available at my local center. As to new releases, with 4 in-store rentals per month, I don't have to worry about getting a new release via mail that I really have to see since I just drop by the store on Tuesday during lunch hour. This works for me at my southern residence where I'm closely located to a BB shipping center. When I go to the northern residence, I'll likely have to go back to NF to get decent shipping schedules. I really don't see how BB can afford the 4 in-store rentals per month, but I'm not complaining. I just hope BB can stay competitive with NF because everyone will benefit from the competition. One last note. I tried BB last year and the service in my area was terrible. It is vastly improved this year.

[Rusty Ramrod]

What I love about this story.

Firstly the tag line is awesome:
Netflix sends Frequent Renters to the Back of the Line

I can just picture a cartoon of a burly guy pointing his finger towards the back of a line of millions of customers.

Other points of interest in the story:

- I find it amusing that “throttling’ is becoming a mainstream word.

- I would like to know how much this line costs to produce:
“In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service”.
My guess is many thousands of dollars.

- “Few customers have complained about this "fairness algorithm," according to Netflix CEO Reed Hastings.”

OMG, does he actually expect anyone to buy that line of bu11shit? My guess is 25-30% of the CS calls are related to throttling, although most people wouldn’t know what was happening, only that their shipments were being delayed.

- While I agree with the first part of this statement, if anyone is actually stupid enough to believe that NF pays the full 39 cents postage they are dumber than a tree stump.
“Customers who quickly return their movies in order to get more erode the company's profit margin because each DVD sent out and returned costs 78 cents in postage alone.”

- “Hastings said the company has no specified limit on rentals, but "'unlimited' doesn't mean you should expect to get 10,000 a month."
What an ignorant MOFO. No one is asking for 10,000 a month, only the 39 they should be able to get were the service truly unlimited as advertised.

- “Netflix denied the allegations, but eventually revised its terms of use to acknowledge its different treatment of frequent renters.”
Caught in the act, as they say. Makes you feel sort of warm inside.

- Good story. I enjoyed actually reading a somewhat factual article. I’d like to see on of the national news agencies do a long term story on NF and BB to expose the mis-conduct.

The terms of service actually outlines their throttling practices. I guess the only question left is why do they still advertise the service as unlimited?

The problem with Netflix is the same with most corporations today, namely that thanks to data mining techniques, they can easily identify the customers costing them the most money and then annoy the customer enough to make them go away.

[ChicagoGuy]

Very amusing to see Reed admit to what we have known all along. Some of the posts here don't understand the issue. It is not about what flix you get it is the delay in shipping and or receipt. This delay effectively negates the "unlimited" selling point and penalizes the heavy user of the service.

Perhaps an honest policy such as your X out plan will allow the max of Y Flix per month. For each above that a charge of $x.xx will be assessed. That way everyone knows the truth at the time they sign up and can choose to increase usage for additional fees.

Old Reed ought to try honesty instead of corporate BS when dealing with customers.

[Rusty Ramrod]

I think Chicago Guy expresses what most of us feel. I personally believe NF and BB provide an adequate value and certainly convenience. That has never been my beef.

My beef, as he states above, is simply both companies are bald ass liars about unlimited service.

If I told someone "You can punch me in the arm an unlimited amount of times, but then told them to stop when it hurt, that would be the same thing." ;-)

I would be hard pressed to understand someone bitching if NF's and BB's 3 out plans read "3 out at a time, 15 a month maximum"

Then we would know where we stand going in. As it is, the people who feel they are getting the bone will try whatever they can to try and even the score (reporting discs missing or damaged, bitching at CS until they score additional in-store coupons, etc.)

[Laddy]

I agree with ChicagoGuy that each plan should just say xx rentals per month included in the price and $x.xx per rental over that number. It would also be nice to have a queue where you could indicate what you wanted and when you wanted it. In other words, maybe there isn't anything I want from next weeks new offerings but the following week is chock full of goodness. Why not just allow the renter to not have anything shipped the next week but then get 6 over the following week. As it is now, you have to hang on to the dvds you have and not send them back to keep NF or BB from shipping the next batch upon receipt. That keeps dvds out of the inventory that could flow back in under the above scenario.

you are all right and all brilliant.

Here's the thing. There are 4.2 MILLION subscribers. That's a very, very large number. Let's be generous. Let's say there are 1000 really vocal, really unhappy subscribers like manuel who post here. In addition to them, let's say there are another 9000. Hell, let's make that 99000 unhappy subscribers. 100,000 unhappy subscribers. That's 2%.

Hastings is not lying. You may not like throttling, but there are more than four million other folks who either are not throttled or don't mind it (I'm betting that only a tiny fraction of the 4.2 million customers get throttled - and probably 80% of them post here whining about it).

[Greg Andrew]

The throttling policy is also a way of getting rid of customers that Netflix doesn't want. This is common business practice these days. Best Buy, for example, has developed a selling philosophy to get rid of what thet call their "devil customers."