The Dark Side of Netflix

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11/19/2005

Reed Hastings' Total Movie Hounds

In a recent interview in FastCompany, Netflix CEO, Reed Hastings had something to say about heavy users.

In Hastings' view, if you want to watch fifteen DVDs a month, you are a “total movie hound.” He also suggests, in a narrow sense, it might be better to get rid of the movie hounds, because they cost Netflix money. He then seems to add as a positive that the movie hounds stay with Netflix a long time.

This view is contradictory. If a fifteen-DVD-per-month movie hound costs Netflix money, how could having a movie hound as a long-term customer be positive?

Is Netflix exaggerating their costs? Why does Netflix hang on to customers they dislike? If Netflix is really losing significant amounts of money on certain customers, why doesn’t Netflix rework their business model so they can have a less adversarial relationship with their customers?

Here is the original question and response for your reference.

FastCompany: Who's your ideal Netflix customer?

Reed Hastings: A customer who's traveling and forgets to rent a movie and watches no movies in a month [might be], because they haven’t cost us anything and they've paid us $9.99 or $17.99. On the other hand, a customer who's a very light user is not going to stay with us very long. It's not that there's something wrong, that they don't like you, it's just that they aren't watching any movies. That's the number one reason for customer churn. On the other extreme we've got users that are total movie hounds -- they're watching 15 movies a month -- and in some narrow sense, it would be better to get rid of them because you're losing money on them. But then, they stay with us a long time. So there is no best customer. We try to make the experience work for all of them and we try to balance that.

An interesting exercise is when we run short of titles. We try to always be in stock, but sometimes we're not. Say we've got 1,000 copies and there's 5,000 people who want a movie. So maybe somebody's already gotten a lot of value for their $20 or $18 or $9 because they've watched a lot of movies while other people have hardly watched that many movies this month, so they haven't gotten enough value yet. Our sense of fairness is that if we run short, it goes first to the people who haven't gotten the most value yet in order to create a fair and balanced experience for our customers.


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5 comments:

A.Ho said...

I think you are putting your own negative spin on this interview. The comparison of a light user to a 'movie hound' does not seem, to me, to be a judgement statement. Some customers are going to rent more movies than other customers and Mr. Hastings seems to be aware of that, not critical in a 'how dare they?' sense. This is a guy running a large business and he's looking, I hope, at the larger scenario.

Personally I don't like the statement that there is no BEST customer. How about the customer that pays for the service month after month?. I think that's a pretty good customer.

srj said...

I followed the link and read Hasting's comments about customer service -- he is off in some kind of fantasyland. Never before have I dealt with a company that was hostile to its loyal paying customers.

If your business is renting movies, and your model doesn't work for "total movie hounds" something is wrong.

BLOGGDOGG said...

Hastings has spoken in hast! This guy is full of himself to the point of unconcious sabatoge. If I was a shareholder in Netflix I would be scared because the arrogance of this CEO is beyond reason. What an Idiot.

Ceejo, That Last Dinosaur said...

I hate Netflix, but I have to stand by them on this one. Damn you for making me defend a horrible scam.

Actually, no. They don't deserve your criticism this time, but they probably deserved it another time you overlooked, so I'll let it slide.

Anonymous said...

this guy should get into a different business.It seems the more you like movies the less he wants you as a customer.