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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