Netflix is Plenty Successful Without Having to Slime its Customers
I paid for the DVD service for six years without using it or even knowing that it was still active
Reed Hastings is one smart guy. When he founded Netflix in 1998, he already saw the future. Like Steve Jobs before him, he understood the trajectory of technology development and knew that, impractical at the time, streaming video would one day become the norm. He also knew that the inflection point that would make the Netflix we know today possible was still years off in the future. And he grasped that, by the time streaming was mainstream, everyone would be doing it.
So, he set out to build the company a piece at a time. The front end was possible right away: selection, ordering, payment, all that, could be done with existing Web technology. For the back end, Netflix would have to settle for the hamster-wheel contraption of mailing DVDs all over the place and reeling them back. Shades of Amazon, Netflix had a high-tech end of slick Web pages, recommendation engines, e-forms, and electronic payments and a super low-tech end of warehouses, pickers, packers, and mailers.
He had the front end and — more importantly — the customers. It was only a matter of time, technology development, and programming to convert those customers to the “real” system. With both ends as cloud services, Netflix was free to scale almost infinitely.
Like I said, Reed Hastings is one smart guy.
Recently, I decided to cancel Netflix because we had stopped using the service. It didn’t occur sooner because both my kids used it all the time, and they groaned whenever I talked about unsubscribing. I was paying $16.29 a month. When the company announced yet another price increase, I decided enough was enough and sent a warning email to my progeny, who whimpered a bit and then were still.
All fine. When I got my final credit card bill with the $16.29 line item on it, I spent some time wondering what I had been paying for. It turns out Netflix bills a month in advance. If, like most people, you pay your credit card in arrears, then you’re paying for the service toward the end of the month you’re using it. I wanted to see whether I had cancelled in time to skip the latest price increase. Looking through my credit-card history, I could see that the bill had been steady at that rate for months. Still good.
But then, being the kind of obsessive that I am, I went over to Netflix itself to look at my account information.
That’s when I discovered the underlying DVD subscription. The account page showed my recent cancellation of streaming, but there was a big red banner indicating my very-much-alive DVD subscription. To my disappointment, I learned that the company had been sliming me for $4.99 a month for the past six years for the DVD service, which we last used in 2013. Six years times 12 months times $5 is $360, not a huge amount of money, but worth at least an attempt at recovery.
I then called Netflix. To its credit, Netflix had an actual human answer the phone fairly quickly.
The respondent, Pavit, was able to cancel the DVD service, but could do no more than that. He escalated to a supervisor, Aaron (who uses “Agent 42” as an identifier), and Aaron did that familiar little dance along the fine line between adhering to company policy and keeping customers happy. He said he was sorry and could refund me six months of DVD subscription or $30.
But he warned me that I had a DVD outstanding — Avatar, as it turns out. He said the cost of the DVD would have to be deducted from any monies refunded because, in theory, I could have watched Avatar every day for the past six years. As a result of my weirdly obsessive organizational habits, I was able, in seconds, to lay a finger on said DVD, which was lying on top of a NAS drive not four feet from where I was sitting. I never did see the last six minutes of Avatar.
Aaron gave me an address in Boston to send the old disc to, and one in Los Gatos, California, Netflix headquarters, to write to with my complaint and told me to address it to “Corporate Escalation,” which sounds about right.
Here’s a mystery. In an email, Netflix admin told me that said refund would be credited to the long-defunct credit card I used to open the account. However, a few days later, the doh turned up on my current credit card, the one Netflix had been billing until recently. The strangeness of this billing setup is a result of the fact that Netflix views itself as two companies (actually more, but let’s say two for now), the DVD firm and the streaming service. In 2011, the company sought to spin out the DVD company and then thought better of it, keeping it under the Netflix moniker. But internally, they are very much two separate companies — except at the billing level.
To all its customers, it bills one number. I did a bit of further research, asking around among friends and floating a Survey Monkey survey to find out what people had, and what they thought they had, for service. It turns out, there are various levels: with and without DVD, two screens and four screens simultaneously, variants such that people are paying at different rates. Most people didn’t know whether they had DVD service or not. They all said they see only one number each month on their bill. So, from a customer perspective, Netflix is very much one company, whatever its internal organization.
When streaming started in 2007, the library of available content was lean. The DVD service, by contrast, had a better library than any Blockbuster retail outlet could maintain. So, it was natural for most users to keep the DVD service until streaming became more viable. At some point, the streaming content became rich enough to supersede the DVD service, and, in theory, DVD could have been retired. But it still retained a revenue stream sufficiently important to keep going. I suggest that during this natural transition, the company should have presented an off ramp for people like me who forgot they even had the DVD service.
But not a peep from the company. At no point in the past six years did I get any reaffirmation that I was still subscribing to receive physical discs. Is this fraud? Probably not. I can’t find anything having to do with my original agreement with Netflix, and in any case, the company likely protected itself. Aaron (Agent 42) wound up his vaguely threatening legalese machine when I started the conversation down this track. So, I suspect the company is covered, technically.
But here’s a question: why does Reed Hastings, as successful as he has been, have to cadge his customers for that extra drop? He’s made a shit-ton of money, probably beyond his wildest dreams. What’s the point of misleading people, potentially fraudulently, to make a few extra dimes? Why is it that too much is never enough? I will write to corporate as Agent 42 suggested, but I don’t expect much to come of it.
Many years ago, my father founded the first eCommerce business, AutEx, essentially Bloomberg before Bloomberg. At the time, AT&T was a monopoly and controlled all the long lines, local distribution, and handsets in the U.S. telephone business. My father admired AT&T for its business model: “A billing machine,” he said. “That’s what I want.” The idea was that once the physical plant was set up, all the company had to do was send monthly bills. Never mind that there were numerous product businesses that AutEx could have spun out. For example, it created three bespoke switches that could have been the basis for a Cisco-like company. But he liked the services model, where you set it all up, and then just maintain it and send the bills.
Netflix is a billing machine. That’s a fantastic business model. But there’s no reason to slime the customers extra on top of that.