Netflix, for the last few years, has been riding a tidal wave of rave reviews, good press, and that all-important word-of-mouth.
The business model is indeed successful and wise and has been working well.
But that wave has become choppy. There have been rumors for some time that Netflix was engaging in an activity known as “throttling”.
The company has now admitted, in court documents, that it indeed does this deceitful action.
Since Netflix gets a flat fee for unlimited DVD viewing, customers who quickly return their movie are making less money for Netflix than those who return them more slowly.
So Netflix has found a way to tweak that a bit.
Enter the Associated Press story which may lead to a backlash against Netflix.
The story begins with a clear anecdotal example, about how a customer who used to regularly view and receive 18 to 22 movies a month. Now, under the “throttling” plan, he is getting only 13.
The Netflix CEO may want to think before he speaks again. What he told the Associated Press was that few customers complained about what he called a “fairness algorithm.”
Netflix (Nasdaq: NFLX) is the world’s largest online movie rental service, providing more than 4 million subscribers access to more than 55,000 DVD titles.
Members have the choice of nine subscription plans, starting at $9.99 per month for unlimited rentals with one DVD out at a time. With the most popular plan, at $17.99 a month, Netflix subscribers can rent as many DVDs as they want, with three movies out at a time. There are no due dates and no late fees. DVDs are delivered directly to the member’s address by first-class mail – with a postage-paid return envelope – from shipping centers throughout the United States.
Added: There is also a class action suit being organized about this matter.