Knit Flix

Tuesday, May 02, 2006

Netflix Class Action Settlement: approved

The good news is, Netflix will not be charging automatically for the upgrade once the free month is over. The not-so-good news is they can continue throttling their high volume subscribers.

Related posts:
Netflix policy
Netflix policy continued
Netflix Class Action Settlement

Judge OKs Netflix settlement
By Michael Liedtke
Associated Press

A judge has approved a class-action settlement requiring Netflix to offer a free month of DVDs to 5.5 million current and former subscribers, resolving a case that prompted the Los Gatos online rental service to acknowledge it sometimes delays shipments to its less-profitable customers.

The settlement, released Monday after being approved Friday, had been delayed since late March when San Francisco Superior Court Judge Thomas Mellon Jr. balked at a proposal that would have guaranteed payments totaling $2.5 million to a handful of lawyers.

Under Mellon's final order, Netflix must pay $1.3 million to Adam Gutride and Seth Safier -- the San Francisco attorneys who filed the suit in September 2004 -- and $60,000 to lawyers whose objections to an earlier agreement helped shape the final settlement.

Most Netflix subscribers pay $17.99 a month to keep up to three DVDs at time. The system has been successful for Netflix so far, powering the company to a $42 million profit last year as it lures people away from conventional video stores like Blockbuster.

Current Netflix customers with the $17.99 monthly plan will have the option to check out four DVDs at no additional charge, a $6 savings. About 3.7 million former subscribers will be offered a free month of the $17.99 rental plan.

Netflix expects to begin sending out notices of the final settlement later this month. The company had estimated the total settlement costs at $8.95 million, but that figure assumed it would pay $2.5 million in attorney fees.

``We settled the case in the best interest of all parties,'' Netflix spokesman Steve Swasey said. The company isn't acknowledging any wrongdoing.

The case revolved around allegations that Netflix had been misleading subscribers about how quickly it delivered movies to them until Jan. 15, 2005 -- the date the company made a change to its terms of use.

The revision disclosed for the first time that Netflix sometimes delays shipments to frequent renters so it can give higher priority to customers who keep their movies longer.

The practice helps boost Netflix's profit because the company charges a flat monthly fee and provides postage-paid envelopes for DVD returns.

The monthly fee system means Netflix makes more money from infrequent renters and risks losing money on customers who return DVDs quickly so they can get the next movie on their online wish lists.

Under an earlier version of the settlement reached six months ago, Netflix would have been able to automatically charge customers after the free month of DVDs.

The Federal Trade Commission criticized that arrangement as a promotional gimmick, prompting changes that prevent Netflix from extending the service without prior customer approval.

Nearly 420,000 people accepted the original settlement. Mellon's order allows Safier and Gutride to apply for an additional $1.1 million in fees if the revised settlement entices substantially more people to sign up for the free DVDs.


  • So... lemme get this straight. You got 1 month free rental and some dorky lawyers get 1.3 million? And this is a win for the consumer???

    By Blogger spinnity, at 5/02/2006 5:13 PM  

  • wow.. hubby is one of those people who rents, watches and sends back fast. but I don't recall him complaining about slow delivery. Our problem is the post office. Quite a few people in the area also use Netflix and our movies would get switched. Once a whole bunch went missing because of a botched delivery and the person who GOT them never gave them to us.

    By Blogger LaBean, at 5/03/2006 6:32 AM  

Post a Comment

<< Home