Kudos to Netflix (NASDAQ:NFLX) for nipping a vicious rumor in the bud.
The DVD rental giant posted an official explanation in its blog over the weekend, detailing the discrepancies that various users have experienced with the company's digital delivery service.
What triggered the response? Well, some bloggers and Netflix watchers were claiming that the company was throttling its most active digital users, in the same way the company throttles its most active DVD users.
Throttling is a sensitive subject for Netflix, but it has conceded to giving preferential treatment to its less-active -- and therefore, more profitable -- subscribers. When we had CEO Reed Hastings on The Motley Fool Radio Show back in 2005, he admitted that if there is limited availability on a popular title, the less-active subscriber will have first dibs on the flick.
So how exactly do you throttle active users in cyberspace, where inventory is not limited to the laws of supply? Some bloggers were claiming that Netflix was delivering slower -- and lower quality -- streams to those who milk the most out of the unlimited digital offering (which is available at no additional cost to existing subscribers on unlimited DVD plans).
The company's answer
In its response on Friday, Netflix explained that subscribers aren't deliberately being sent varying degrees of content quality. It points the finger everywhere, from its content-delivery network partners like Limelight Networks (NASDAQ:LLNW) and Level 3 (NASDAQ:LVLT) that deliver the streams, to the differences in the variety of appliances like Roku, TiVo (NASDAQ:TIVO), and Microsoft (NASDAQ:MSFT) Xbox 360s that serve up the virtual flicks on TV.
However, the company's juiciest target is the collection of Internet Service Providers that are already on the hot seat for punishing its most active Web customers. Some of the largest broadband providers like Comcast (NASDAQ:CMCSA) have already come clean with usage caps for heavy multimedia users. Since ISPs are already the villains that get booed whenever they enter a room of digital media junkies, the crosshairs are easy on the eyes.
It will be interesting to see if the industries where Netflix lays blame will fight back. Either way, it's great to see that Netflix isn't taking its success lightly. It knows that digital streaming is a major reason for its success at a time when most subscriber-based entertainment offerings are fading.
Netflix won't always be there to throw the first punch. It just wants to make sure it comes in early with the last punch.
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