Netflix - The Bigger They Get the Harder they Fall?
 by: Steve Hatcher

Netflix pioneered online movie rental offering a monthly subscription to rent DVD's from its website. Users create a list of movies they want to see then Netflix delivers them by mail, usually 3 at a time, with no postage cahrges and no late fee's. When the customer is finished with the movies they simply send the DVD's back in the postage paid envelope provided. Netflix then sends more after they receive the previous rentals. Its a great service, very convenient and saves money. Netflix then grew quickly and its stock price has soared. Deservedly so.

But recent confirmation (reported here http://www.msnbc.msn.com/id/11262292/) of persistent rumors that Netflix has begun to curb the number of rentals that high volume renters receive has angered many customers. This goes against Netflix's claims of "Unlimited Rentals". Normally renters could rent as many movies as they possibly can with the only limitation being how quickly they watch them and return them. But heavy renters appear to be being filtered by the company's automated system and shipments are being delayed to put a cap on the number of movies these heavy renters receive. This was rumored to be true for some time as the heavy renters noticed the delays and was confirmed when Netflix altered its Terms of Service agreement after a Class Action suit in relation to their advertised "Unlimited Rentals" and "one day delivery".

Granted the company should be trying to cut costs in areas that are higher than the average. And heavy renters will notice a decline in service over what they previously received. But others are noticing other forms of decline. Many new subscriber report great service with quick turn arounds for DVD rentals but a subsequent decline a couple month later. Also many are beginning to report the more popular titles remain in their queue for weeks before receiving one of those movies. These reports appear to be escalating on message boards and forums relating to Netflix's online rental service. Just do a Google search for "Netflix Throttling". Unless Netflix seriously address these issues things will only get worse.

The company added over a million new subscribers last year to make a customer base of 4.4 million. They have set a target to gain another million plus this year to put them at nearly 6 million customers. It would appear that the phenomenal growth in subscriber base is not being matched with an increase in inventory to offer the same quality of service. The incredible success of Netflix has spawned on many competitors with movie giant Blockbuster nipping at their heals. Blockbuster offers competitive pricing to Netflix but also offer a number of free in-store rentals through printable coupons to its online renters. This is something that Netflix cannot offer and helps alleviate the problems of many renters having the same popular movies in their queue and long waits for these titles.

Netflix has been a darling of Wall Street with a tripling of its stock price over the past 12 months. The company seems to be so focused on customer acquisition and pumping its stock value but are not keeping up with what's needed to continue to offer a quality service. If the service continues to decline, customers will start leaving in droves, and stock prices will decline as a result.

Netflix practically invented this industry and deserves a lot of credit for creating a service that many enjoy, but it may be time to read the writing on the wall, or the web forums and blogs at least, and refocus on service to keep the experience enjoyable for its million of users.