January 11, 2006 4:18 PM PST

FTC fights terms of Netflix settlement

The U.S. Federal Trade Commission has blasted Netflix, saying the company has tried to turn a class-action settlement into a marketing opportunity.

The agency filed an amicus brief last week asking a San Francisco judge to reject or restructure the terms of the settlement, which Netflix proposed in October after facing charges that it broke customers' service agreements.

"The commission takes no position on the merits of the underlying suit but is troubled by a settlement that appears to provide greater benefits to Netflix than to consumers," the agency said in a statement.

Under the proposed settlement, some current and former Netflix subscribers are entitled to either a free, one-month membership or a free, one-month upgrade in their service plan. But if members aren't careful, they may end up paying for the new plans down the road--after the first month, the company intends to keep customers signed on to the upgraded or renewed services while charging for them, unless the members proactively cancel or modify their plans.

"The settlement would serve more as a promotional vehicle for Netflix than a means of providing redress to consumers, and could leave some consumers in a worse position than if they had decided not to participate," the FTC said.

Netflix, based in Los Gatos, Calif., also agreed to pay the $2.5 million in plaintiffs' attorneys' fees, prompting some critics to call the settlement more of a victory for lawyers than consumers.

A Netflix representative declined to comment on the FTC's position but reiterated that the settlement is in the best interest of Netflix shareholders and customers.

The class-action suit, filed in San Francisco County Superior Court in 2004, alleges that Netflix failed to provide the level of service promised in marketing materials, including one-day delivery and unlimited DVD rentals.

The judge hearing the case admitted the FTC's brief on Monday. A final settlement hearing was originally scheduled for Jan. 18 but has been set for Feb. 22 at the request of both parties, according to an FTC official.

20 comments

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Netflix Loosing My Support
Previously I dismissed Netflix complaints as idiotic and fully supported the innovative company. However, over the last month, I did a small experiment...
You see, the complaint against Netflix is that it "throttles" users who rent too much. It does so by slowing down shipments if you exceed some undisclosed number of rentals per month. In November, using my 1 disk at a time membership, I tried to get as many movies as I could. Normally I watch about 3 or 4 movies a month. During the "experiment" I returned every movie the next day. I live right by the distribution center. The first 3 movies had ONE DAY turn-around, (one day to get to me, one day to return). Then the turn-around period turned into a total of a WEEK.

So now, while I continue to use Netflix, and I think they should be allowed to limit monthly uptakes if it's necessary to stay profitable (like they do for the 2-at a time, 4 per month membership), this should be out in the open. Shame on them not changing their practices even after the lawsuit.
Posted by sanenazok (3449 comments )
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This is why I left and changed to Blockbuster monthly pass
I left Netflix and joined the BlockBuster monthly pass. Now I can go at anytime and rent a DVD from Blockbuster (there's a store pretty near my house) for a fixed monthly fee and keep it for however long. I can rent any time at impulse when I have free time without waiting for Netflix DVDs to come. Naturally the choice is lesser but you can get new DVD releases much more easily than from Netflix. Overall I'm happy since my store has a decent collection. I'll probably continue till I feel the choice is dwindling down. Others might want to explore this option or combine this with a 1 DVD plan from Netflix or Blockbuster Online.
Posted by aabcdefghij987654321 (1721 comments )
Link Flag
re
Do you know that not all your rentals come from the same distribution center. You might have one next door, but if they don't have a copy of the movie you requested, another center ships it.

For example, I have three disks currently, one is from around the corner from one. Another is from CA and another from PA(I live in WA).

Also, it is not open on weekends, which affects turnaround time as well. Not to mention sometimes the post office is slow. There are too many variables you failed to consider to make your experiment anything more then anectotal, which I am sure you knew since you wrote "experiement".
Posted by Bill Dautrive (1179 comments )
Link Flag
Sorry. It's all my fault
Back in December of 2003, I had just moved into my new place and didn't have a tv so NetFlix (and my laptop) was my only source of entertainment. I went through 12 movies that month. So I probably ruined it for the rest of you. My bad.
Posted by markusfarkus (96 comments )
Link Flag
they have gotten totally unpredictable
Lately I've had some of the slowest service ever. Most recently I returned two movies on the same day, one of them they received the next day, the other they received 4 business days later. How does that happen, I have no idea.

With good TV shows like Lost and 24 coming back, and OnDemand programming I've decided to cut netflix out. If I really wanna see a movie I'll just order it through my cable company.
Posted by hugh dunnit (35 comments )
Link Flag
Netflix Not So Great, Blockbuster Okay
My first time with Netflix, maybe two years ago, they were
maybe 1-2 day turnaround consistently. I actually quit just
because there wasn't that much I wanted to see, then signed up
again shortly before ER third season came out on DVD. It took
them TWO MONTHS before I could see any of these DVDs, one
problem being they wouldn't let you get them out of order. Now
in comparison, on a free trial membership to Blockbuster I put
ER Season 4 in my queue and guess what? I got my first one the
day after release. One day versus two months! However, their
turn around time ain't so great either. I think the problem for me
is that Netflix' service changed from very fast to agonizingly
slow. I have complained twice about this and the first response I
got a canned email answer which basically said try returning
your movies from the post office (as opposed to drop boxes or
my own mailbox), which I do anyway. There is no way it takes
the postal service one week for those things when the return
center is only 1.5 hours away from where I live. It is
disappointing, because I respect the innovative idea of the
business and better selection than you would get in a video
store. I will probably drop Netflix.
Posted by bhicks331 (1 comment )
Link Flag
netflix turnaroung time slllooooowww
initially netflix was an excellent service. send in the dvd on monday get the next one on wednesday or thursday. today, Presidents day, they send email saying they've received my dvds and are sending the next ones. I mailed those in last Monday. that's eight days before they respond that they have received the dvds, let alone it will be another 2 or 3 days before I receive the new ones. they have been steadily getting worse. if this is happening to other customers of netflix I'd like to know. Maybe there is a class action that we could all become involved with.
Jensonee.
Posted by jensonee (1 comment )
Link Flag
Here's the revealing and disturbing part of their new terms, which basically admit to what they were sued for:
"In determining priority for shipping and inventory allocation, we may utilize many different factors, including the number and type of DVDs you rent through our service, the membership plan you select, as well as other uses of our service by you. For example, if all other factors are the same, we give priority to those members who receive the fewest DVDs through our service. The type, number, mix and weighting of the various factors impacting shipping and inventory allocation will change from time to time and will be made in our sole and absolute discretion." In other words, if they find you renting and returning quickly, and it ups the amount of monthly dvds you rent, they can intentionally slow down your shipments so you don't rent too many. They also mention in this section that "most people check out 1-11 dvds in a month". I guess this is their target # for what they want to allow.
Posted by eduardogarcia (24 comments )
Link Flag
Class Actions Lawsuits: What a JOKE
I love it. Everyone in the "class" gets the equivalent of a coupon for free french fries, the lead plaintiff gets a whopping $2,000 (still about $1,900 too much, if you ask me), and the attorneys...ah, yes, the attorneys, what do THEY get for representing the class? You know, the class they they really rolled up their shirt-sleeves to get us that free french fry coupon?

$2.5 MILLION!

Don't believe it?
<a class="jive-link-external" href="http://cdn.netflix.com/us/corporate/settlement/settlement_agreement.pdf" target="_newWindow">http://cdn.netflix.com/us/corporate/settlement/settlement_agreement.pdf</a>
See page 24.

Phooey.
Posted by pbroni (6 comments )
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Exactly My Reaction
sometimes companies deserve to be sued. but, i'm surprised that the ftc is complaining about the netflix settlement when, as you describe, it's pretty typical for them to allow settlements which a business uses to develop new sales. the french fry coupon is spot on: "and would you care for a $1.89 soda with that, sir?".

mark d.
Posted by markdoiron (1138 comments )
Link Flag
Keep the lawyers out
I agree. While the FTC may have a point on the settlement, why file a class-action lawsuit over poor service in the first place? Why not let the free market dynamics rule and let customers take their business elsewhere if they aren't happy. It's the blood-sucking, maggot lawyers (to quote Jeff Ward of KLBJ-AM) that get paid handsomely for such an unworthy cause.

By the way, I've been very pleased with NetFlix quality and service over the past year.
Posted by ssalava (41 comments )
Link Flag
Outrageous - Boycott Netflix!
The proposed settlement as described here is ABSURD - to collect anything at all, I have to sign up for a new service and then cancel it later to avoid additional fees (if Netflix will even answer the phone at cancellation time)?! If this has been agreed to by plaintiffs' counsel, it would seem to me that they have utterly abdicated their duty to their ostensible clients...
Posted by commsoft (52 comments )
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The consumer always gets
the short end of the stick. These class action suits only benifit the attorneys. whole thing is just so much bullsh_t.
Posted by wtortorici (102 comments )
Reply Link Flag
Thank you for the information......
The reason I ended up reading the comments about NetFlix tonight is because I've been considering signing up and wanted to know as much about it as I could beforehand. Now I'm reconsidering since it appears they aren't as customer friendly in all circumastances as they proclaim. Unfortunately, we've all had to deal with businesses in the past that tout excellent service when trying to get us as a client but fail to deliver once they have our signature on the dotted line. And lest we forget.......they never seem to be available or have much understanding when a problem comes up or the client wants out.
Too many of those out there already.......guess I'll skip NetFlix after all.
Posted by Interested Reader (1 comment )
Reply Link Flag
"as many movies as you want"? BULL FECES
Netflix not honoring the promise "as many DVDs as you want" is FRAUD plain and simple. With 3-discs out at once, and returning movies the same day they're received one SHOULD be able to rent in excess of 25 movies/month. Whatever BULL FECES reason they offer up for not fulfilling this promise constitues at the very least BREACH OF CONTRACT. Do you smell ANOTHER class action lawsuit?? I do!!
Posted by SmithBarney (14 comments )
Reply Link Flag
Whenever we return two films in the same envelope, which they say is acceptable, they check in one film and wait several days to check in the second one. And if we have been returing films very regularly, and the number of dvds goes over 10 in athe month, then they start taking a full week to aknowledge your returns. And this happens when we are at the three dvds at a time membership. Fraudulent!
Posted by eduardogarcia (24 comments )
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