Analysis of Netflix's DVD Allocation System

dvd_rent_test writes "Netflix uses the number of movies you have previously rented to determine your priority in getting movies. The more movies you rented during your last billing cycle, the less chance you have of receiving a movie versus an individual who has rented fewer movies. This is why new users have great success getting their movies and older or heavy users have a difficult time getting some movies."

Comments

make sense

[ih8apple]

classic bait and switch:

Get every movie you want during your trial period and first few months and then get screwed over for the rest of the lifetime of your account...

Re:make sense

[jhigh]

RTFA...it has nothing to do with your trial period. Your rental availability is based on the account activity of the last billing period. For example, if you only rented one movie last month, then this month you would have good rental availability. If you rented a lot last month, then this month you would have crappy rental availability.

I think it has more to do with the fact that people who are renting a lot are obviously watching more movies. Therefore, the chances that they'll find another movie that they like if the one they REALLY want is not available are pretty good. However, if you only rent sporadically, then the chances that you are going to get frustrated and terminate your service if the movies you want aren't available are pretty good.

My first reaction to this article was that Netflix was way off the mark. However, if you really look at it it makes sense. They are keeping the people who are most at risk for cancelling the happiest. Those people who rent a lot of movies no matter what are less of a cancel-risk, so Netflix isn't as vigilant about making sure they get their first choices right away.

Re:make sense

[techstar25]

Ah, people are missing the other side of the coin here.
Look at this example:
Lets say in January, Joe rents 10 movies, but Mary only rents 1. During the next month more movies will be available to Mary because she rented less.
So in February Mary rents 10 (because more were available) but Joe only gets 1 (because less were available).
Now over the two month period both paid $19.95 per month, and both AVERAGED 5.5 rentals per month. So it comes out fair for both parties. When you look at it this way it seems totally fair and justified. Although a little strange I'll admit.

Re:make sense

[billnapier]

Not only are they keeping the people most likey to cancel happy, they are also keeping the people with highest profit margin happy (less rentals means less shipping cost to netflix). So if could be viewed as simply good business practices to keep the customers you make the most money off of happy.

Re:make sense

[tenman]

You have to tie a CC or Bank Account to your accounts... how often do you change those? They would know it was you trying to come in again, unless you opened a new banking account. Same thing AOL's been doing for years...

Re:make sense

[ankit]

Heard of one time use CC numbers?

Re:make sense

[John Harrison]

You are kind of missing the point. The system doesn't make it so you can't rent as many movies, it just makes it less likely that you are able to rent a popular movie. So Joe could still watch 10 movies, just not 10 that are in high demand. So he might get UHF or Kentucky Fried Movie while having to wait for his beloved About a Boy.

Re:make sense

[Genyin]

So the solution is two accounts, alternating between each on a monthly basis?

in which case you are paying twice as much, of course. They wouldn't mind.

Re:make sense

[Anonymous Coward]

RTFA...it has nothing to do with your trial period. Your rental availability is based on the account activity of the last billing period.

So could you explain the typical activity of the last billing period for people on trial accounts? If you don't get it yet, the trial accounts will have the best performance, and idle accounts too.

I think it has more to do with the fact that people who are renting a lot are obviously watching more movies.

Duh. It's more expensive for netflix to mail out movies, so if they can slow down your intake of their discs, they save money. But you SPEND the same amount.


Therefore, the chances that they'll find another movie that they like if the one they REALLY want is not available are pretty good.


Perhaps, but should you be penalized for using your account the way that they advertise it to be used? They advertise UNLIMITED rentals, but then penalize you for taking them up on their offer.

Ideally, they want you to be a paying subscriber who never rents movies.

My first reaction to this article was that Netflix was way off the mark. However, if you really look at it it makes sense. They are keeping the people who are most at risk for cancelling the happiest. Those people who rent a lot of movies no matter what are less of a cancel-risk, so Netflix isn't as vigilant about making sure they get their first choices right away.

Most people with idle accounts or no previous billing cycle are newcomers. If you're going to fork over money each month, you're going to take advantate of the offer, or else it is not cost effective.

Yes, it makes sense for Netflix, but only because it's saving them money.

Re:make sense

[nelsonal]

Loss leaders are a common part of retail marketing. Retailer's know that if they bring in shoppers with a few very inexpensive items, that we are likely to do all of our day's shopping there, at normal markups. So they occasionally sell things at or below their own costs. Go check the price of turkeys during the week before thanksgiving, and contrast that with the price of roses the week before Valentine's day. You only need the flowers on V day, chocholates aren't high enough margin to count, and most guys buying flowers aren't really gonna do much other shopping at the same time, but when you buy a turkey, your gonna need stuffing, potatoes, pie, cream, cranberries, and possibly wine, milk, bread, or a ton of other things, so they want to get you to their store with the low turkey prices.

interesting

[Transient0]

It's a paid service, you would think that they would want to cater to their most active customers to keep from losing them. On the other hand, you might think that since you pay a flat fee that those who didn't make good use of their account in previous months but paid the full fee anyway deserve a little extra priority.

Hmmm... I'm not sure that anyone really has a reason to complain to loudly about this. No-one is being ripped off. Still, I'm not sure I understand their logic in implementing this way. In the end I'm not sure it is in their interest to give preference to either group: the frequent users or those who pay and don't play.

Re:interesting

[SpeedBump0619]

I'm not sure it is in their interest to give preference to either group

Think again. As long as people don't really notice then they can keep a higher subscription rate with this system.

The active people, those who like and use the system often, are less likely to give it up over longer wait times. Those people probably have more movies they want to watch, so they can pick those with the lower wait times.

The inactive folks, those who rarely use the system, must be provided low wait times in order to keep them subscribed. The Surest way to make them leave is to tell them they have a long wait for the one thing they wanted.

This system seems designed to maintain the highest subscription rate, which is exactly what I would expect.

Re:interesting

[TheNumberSix]

It's a paid service, you would think that they would want to cater to their most active customers to keep from losing them.

I disagree. Since customers can only differentiate themselves based on their plan level, the "best" customer from Netflix's point of view is probably the one with the eight rentals out at a time plan, who has nothing in the queue.

The worst customer is probably one with the eight out at a time plan with a queue of over 100 popular films.

Re:interesting

[Anonymous Coward]

It's a paid service, you would think that they would want to cater to their most active customers to keep from losing them.

Yeah, just like cable modem and DSL cater to people running large P2P servers.

This is a manufactured problem

[ArmorFiend]

DVD burners are cheap now. They ought to just license the ability to burn-on-demand from the MPAA. That way they never run out of Titanic or whatever. Perhaps the MPAA would need to fund "UN inspections" to ensure that the excess DVDs are destroyed.

I notice blockbuster charges ~$3.90 for all DVDs now, "because the cost of replacement for damaged DVDs is so much higher than VHS". Sha, right, why blockbuster's don't all have DVD burners in the back room is purely a testament to bad/non-existant negotiations between Blockbuster and the movie companies.

Re:This is a manufactured problem

[operagost]

That's the same rationale the record companies have for charging more for CDs, even though they cost far less to make than cassettes. Unfortunately for Blockbuster, the lie is a bit more visible as new DVDs already sell for LESS or the same than VHS copies of the same movies- and this is with bonus materials! They're raising their prices because they've managed to displace the little guys in most areas and their profits are lower because of the recession. Yes, they're that stupid.

Re:This is a manufactured problem

[darkwiz]

Classic business flaw:

"If we increase service, we'll increase demand at least proportionally..."

However, this assertion is typically just flat wrong. Any business person worth their salt whose goal is to maximize profit will use the route that is most likely to give them the highest margin. If service dropped below a threshold, yes - people wouldn't use the service anymore. However, as long as the service is "good enough" people will continue to use it.

In other words, if they increased service, they wouldn't necessarily increase subscriptions enough to offset the cost. I'm sure there are plenty of people at both Blockbuster and Netflix who have thought of this idea (even with VHS when it would have been more possible and cheap). They probably came to the conclusion that it just wasn't worth it.

Re:My analysis

[HowlinMad]

No one cares.

Thats not quite true. Someone took the time to study this. They posted it here... so someone cares, just not you.

Well done...

[TopShelf]

All in all, a nice job of reverse engineering Netflix's allocation scheme. A useful followup would be to contact Netflix and get their take on this.

Allocation strategies always involve prioritizing one type of customer over another - in Netflix's case, this current strategy would seem to make sense while they are trying to grow the business and rake in new customers. Assuming that there aren't significant supply chain issues that are getting in the way of prompt availability for all customers, like a larger number of people than expected not returning DVD's in a timely fashion, Netflix will need to revisit this at some point before they screw their loyal customers one too many times.

This actually seems fair....

[SplendidIsolatn]

Look, there are only a certain amount of DVDs to go around. In the article, it states that the priority is based solely on the LAST billing cycle. So, if you have a bad month getting the movies you want, you'll have a good month the next time, then bad, then good.

It's not a perfect system, but given limited resources, it's the fairest thing they can do and still keep prices reasonble.

Re:NetFlix == Kazaa?

[r84x]

What? This is no first. I am first. I am the leader of this board now. Taxes will come soon.

Business Models.

[gurps_npc]

There are two ways to look at this buiseness model:

1) They are "punishing" the people that make the most use of their service, rewarding those that make the least use. Considering they charge the same amount of money either way, it sounds like a good idea to me.

2) They are catering to two entirely different clientel: Set A) that watch a ton of movies, Set B) That watch only a few movies. Set A pays the same as set B but gets more quantity at the cost of less quality.

Either way, it sounds like a GOOD, FAIR, business plan to me.

Get 'em at the Library

[Saint Stephen]

I just recently cancelled all my cable movie channels and got two library cards (this town and the next town over). I check one or two DVDs out from the library every other day. Sure, they are crappy old movies, but it sounds like that's the bulk of what you get on Netflix and on most of the cable channels anyway. Your taxes already pay for it. Be an old fogey and use the library! It's civic!

Does Queue size affect availability

[powerbarr]

I wonder if the size of one's queue affects availability. If you have a great number of movies in your queue, you probably would not care as much if a specific movie was not available versus someone with just a few movies listed in their queue. This may also explain why a new user would have greater access to movies since their queue would not have grown so much.

Re:This is normal

[viking099]

The thing is, it's the repeat customers that make the most money for most companies. A happy customer who returns to a business for their needs does not need to be enticed or advertised to.
There are some reports that I faintly remember from school that showed how many businesses get like 60-80% of their income from repeat customers.

New customers are more expensive than return customers, especially from a processing standpoint, as well.

Re:how many tricks do they have up their sleeves?

[vondo]

Seems like they've got some pretty "creative" ways of handling their customers. I'm content buying DVDs off of eBay.

Anybody else think they're a little "funny"?

This is standard operating procedure for almost any subscription service. Newspapers, magazines, cable companies, mobile phone companies, all do this.

It all comes down to the cost of acquiring a new customer vs. keeping an old one. But, of course, it would be suicide to offer such a discount to everyone without their asking.

Re:It's Their Business Model

[angle_slam]

In other words, as long as your account is 5 or less and you are profitable for them, you will get movies quickly. If you are renting more than 5, it seems they slow you down in an effort to limit you to the 5 through delay tactics.. rather than just saying "up to 5"

They don't really "slow you down," as you are still able to rent other movies. It's just that some movies become less available than others.

You make it seem like, if it says a movie is a Very Long Wait, you won't get any movie. But, if you keep your rental queue filled (mine has 33 movies; I have been as high as 70. Only 3 are unavailable now), you will always get a movie in your queue, perhaps just not the exact one you wanted.

To me, it's not that big a deal, because Netflix's biggest advantage over local video stores is selection. If they don't have one particular movie, pick another one.

Re:So I wondered..

[zgwortz962]

Actually, I seriously doubt the Post Office has actually lost or stolen these movies. I've been using Netflix for a year and a half now, and have NEVER had a movie lost on it's way to me, but have had 5 lost on the way back, including two that were mailed back on the same day. If it were the Post Office losing these, I'd suspect losses in both directions. It's my suspicion that most, if not all of the "lost" movies are more likely lost at Netflix itself, either not processed correctly when received, or whole bags of incoming that get messed up in some fashion. IMHO.

Full disclosure

[Galvatron]

I think we all agree that this makes good business sense from NetFlix's perspective. People who rent the least are probably in most danger of cancelling. They make the most profit on low volume accounts. People who only rent really hard to get movies will have a low volume and will therefore see their priority rise.

However, what's upsetting about this is that it's not made public by NetFlix. They advertise "unlimited rentals," but penalize you for renting a lot. They encourage you to keep a large buffer of movies so that if your first choice isn't avaliable, you'll get a second, third, fourth, or lower choice, but they don't tell you that this will decrease your priority. That second point, in particular, is rather infuriating, because they're telling you to do something that is directly against your best interest if you want that first choice movie at some point!

If NetFlix can't make money from people who rent 20 movies a month, they need to set an upper limit, or charge a per movie cost. If the business model of a mail order rental place is inherently unsustainable, then they need to admit that, liquidate their company, and cash out. Being deceptive about the priority in which movies are rented is simply unacceptable.

Re:HTF is this fair....

[SplendidIsolatn]

RTFA -- they don't crap over old, established customers -- they crap over people who had a high amount of rentals in the last month. It doesn't matter if you've been with them 2 months or 12 months. So yes, by their rule, your first month will have a quick turnaround in rental time, but after that, it is based on the last month.

What would you rather them do--make all new people wait the longest? Great business plan.

I don't have a problem with a company showing customer's loyalty, but you can't expect them to have a DVDfairy hanging out in their office crapping out DVDs on demand--there's a limited number, and this looks like the most reasonable way of distributing them fairly. You get a good month, then you get a not-so good month.

This system is great!

[dasmegabyte]

I think this system seems to make everybody at happy. Think about it: if you are very religious about sending movies back quickly, you're always getting something new. You've always got a position in the "One In" queue. So you have more chances to get that hard-to-find movie.

People like me, who hold a disk for a long time because they like to intone every scene into memory (or are just lazy), aren't going to get more than one or two chances per month to get that must-have film. To keep it fair, and to keep the probability that either me or my diligent friend will get the movie about equal odds, you've got to weight my chances.

Yeah, it's partly to increase the probability that people who are thinking of quitting will stay on, but even so it's the only way to make things statistically fair.

If anyone from Netflix is listening!? Open Letter!

[treeandorange]

I've been a Netflix customer for quite some time and I've enjoyed the service immensely. But I wonder...

Why do you keep sending me "Free Trial" offers on the inside flap of each envelope? Why do you keep preaching to the choir?

Even if I had 100 friends, they'd be so sick of me handing them "Free Trial" coupons that they'd stop talking to me. Why not subsidize some of MY rental fee or the number of movies I can rent by offering your PREMIUM advertising space to companies like Best Buy or Circuit City. Or, let the advertisers offset the cost of purchasing a larger quantity of DVDs and remove LONG and SHORT waits altogether.

It seems so obvious to me that the envelop flap should be used for advertising - ANYTHING OTHER THAN A NETFLIX product. I would love to see a coupon for $2.00 off any DVD with the purchase of any other. How about $2.00 off a pizza? How about $2.00 off a movie ticket? Why not co-op the envelope space and sell to local area grocery stores or whatever? Use your imagination!

Use the back of the envelop flap for something that is going to benefit the CUSTOMER. Advertisers are constantly looking for new places to advertise. Here you go, a perfect space.

And when you're all done absorbing this idea, you can send me a check or a job offer. I'm a simple man.

Sincerely,
Andrew

Data should be taken in context

[angle_slam]

I have no problems with the data provided by the author. It seems to be well thought out and well executed. However, it seems that non-Netflix subscribers are reading the data and concluding that a subscriber will never get the movies he wanted or never get popular movies.

The key part of the article is this quote:

I created a list of 45 movies in my queue that did not have an availability of "Now."

Note that he specifically selected movies that weren't available. That does not mean that all movies are unavailable. Nor does it mean that popular movies are unavailable. If you look at the list of the top rentals of the past week and compare the list to the movies he checked, you'll notice very few movies that are in both lists.

By focusing on unavailable movies, the author was able to hypothesize the criteria used by Netflix to determine who should get the next copy of a movie. However, some /.ers are extrapolating that data to mean that long time subscribers never get the movie they want to see, as if a person wanted to rent Harry Potter, but is stuck watching Manos, the Hands of Fate (the worst movie of all-time, according to IMDB). That is not the case, if your top movie is unavailable, the next movie in your queue, a movie you specifically picked as being one you want to watch, is sent to you.