Topic: Business & Commercial

"All You Can Eat" Ethics
(2/15/2006)

It's an old Henny Youngman joke: a guy goes into an "all you can eat" restaurant and fills his plate over and over again. Finally, the owner tells him that he can't have any more. "But the sign says, 'All you can eat for 10 bucks!'" the gourmand protests. "That's right," says the proprietor. "And that's all you can eat!" It is unknown whether the executives at Netflix know the joke, but they certainly approve of the restaurant owner's philosophy. Though the popular rent-movies-by-mail company advertises "unlimited rentals" for a monthly fee of $17.99, it seems that once a Netflix subscriber starts renting more than the company's profit margin will bear, the company's service declines precipitously. As soon as the its automated system identifies someone as a heavy renter (more than 3 or four DVDs a week), Netflix begins delaying the shipments to protect its profits.

It took a class action lawsuit in 2005 by an annoyed movie buff to get Netflix to come clean about the practice, known in the trade as "throttling." Then it revised its "terms of service," to declare that ''In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service." In practical terms, this means that the Netflix "unlimited rentals" claim is a lie. Rentals are limited, because the company slows down its service to prevent a renter from getting more than about 13 movies a month. Admittedly, that's a lot of movies. But it's not "unlimited."

Like the casino that tells big winners to leave and the frugal "all you can eat" restaurant, Netflix is engaging in a "bait and switch" tactic as old as it is wrong. They know that most people who sign up will actually rent fewer than $17.99 worth of movies a month, so the "unlimited rentals" gimmick is a lure for suckers. There's nothing necessary unethical about that: it isn't deceptive if it's true and not misleading. But it isn't true. The rare individual who actually rents enough movies that the monthly fee becomes a fantastic bargain will be told, in effect, that he has had "all he can eat." Netflix only honors the deal as long as it works to its advantage, not the customer's.

How petty. Are there really that many people like Manuel Villanueva, a Netflix user in Michigan who was widely quoted in the press as being disappointed because Netflix sent him "only" 12 or 13 movies a month instead of the 18 to 22 DVDs that he requests? Surely not nearly as many as there are renters who only get a couple of movies a month for their fees. The honorable, honest and ethical conduct would be for Netflix to give Manuel and his movie-addicted friends the unlimited rentals they bargained for, quickly and cheerfully. Use them to promote the company, instead of treating them like undesirables and deadbeats. Bulletin to Netflix: those who use your service the most are called good customers. You're supposed to treat them especially well, not especially shabbily.

The dilemma faced by Netflix, in which its best customers are also its least profitable, is not unique. Health clubs and theaters have similar situations: they make their best profits from members and subscribers who pay yearly fees and seldom show up to enjoy what they pay for. Health clubs do not, however, stop giving clean towels to the fitness fanatics who pump iron every other day. Theaters do not stop giving programs to the patrons who never miss a show. If Netflix won't accommodate users who take "unlimited rentals" to mean what it says, then the only ethical course is to stop making promises it has no intention of keeping. "All you can eat" is a great come on, but to insist that it only applies to customers who aren't very hungry is ethically indefensible.

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