Two consumer experiences

September 19, 2011

If you subscribe to Netflix, or if you read the business press, you surely are aware of the recent changes to its business model. For many Netflix subscribers, including me, the separation of streaming and DVD services resulted in a 60% rate increase. My response was to drop the streaming (more convenient, yes, but far worse selection). More people than expected either dropped one of the two separate components or left the company completely (Netflix’s gaffe may turn out to be Blockbuster’s salvation). The stock tumbled.

Today I received an e-mail from Reed Hastings, Netflix’s CEO, apologizing for the way the price increase was handled, but going on to compound the initial error by explaining that the separation between streaming and DVD would be extended to renaming the DVD company and soon employing completely separate web sites. This move seems calculated to move any remaining customers to one service or the other, most likely to make the DVD component easier to sell, and that may be the intent. Why would anyone wanting to watch a particular movie search two web sites to determine in what media it is available?

When I started with Netflix, in the pre-streaming days, I was impressed with its responsiveness and its great customer service.  I bought the stock and recommended the service to all my friends.  When streaming was added, it was a great lagniappe that allowed viewing in between disk deliveries.  More for the same price – what a concept!  The company’s recent moves are so out of touch with that tradition, especially considering that the same CEO is in charge, that one has to wonder if he’s been possessed by some MBA spirit demon.

I understand that the DVD by mail model has become a costly alternative to streaming, and that the uncertainties surrounding the postal service do not make it more attractive.  However, while streaming may serve the bottom line interests of Netflix, and some of its customers, I and many others are more concerned with selection than with medium of delivery.  If the separation of services is part of some grand Netflix plan to become a streaming only company, Netflix had better improve its streaming content (and recent developments with Starz seem to indicate it’s actually going in the opposite direction).  And if its DVD by mail operation becomes a red-haired step child and service standards are not maintained, it will lose customers like me, as well. It’s very sad to see what was a great company – to both shareholders and customers – flame out so spectacularly.  The Hastings letter at least showed some self-realization; let’s hope it’s followed up by some constructive actions.

I receive my phone and internet service from the local cable company.   I’d had the internet service for years (I bought “Road Runner lite” through AOL when I left dial-up; it’s slower than regular Road Runner, but fast enough for me, and it’s only about $25 a month), and I added the phone service a year ago, taking advantage of a one-year promotional rate of about $20 a month).  I’ve been happy with the phone service, and planned to continue it if the price didn’t go up too much.

A few weeks before my year was up, I received a mailer from TWC advising that my phone rate would go up to about $40 a month, and inviting me to call to find out about other offers.  I called, received a fairly hard sell to sign up for a package with cable TV (in which I was not interested), and finally offered another year of phone service for $25 a month.  The catch was that I couldn’t be offered a promotion while I was on a promotion – I had to call back the first day after the promotion I was on expired.  The rep promised to mark my file so that I would be able to take advantage of the $25 price when I called back.

So I called back as instructed,  and was told that promotion was not available, but something not as good was.  I asked the rep to honor the promise that was made to me, and, after threatening to look elsewhere for phone service, was actually offered a lower rate than I pay now.  It seems like the threat to cease being a customer brings up on the customer rep’s screen a whole hidden menu of better offers than are available to existing customers seeking to renew but not threatening to leave.

Far be it for me to tell large companies how to run their businesses, but, even though I’m happy to have phone service for another year for a few bucks less than I had been paying, I would have preferred to have been offered the best available price when I called the first time.  Each call takes a long time, what with identification verification, account review, etc.  But, if that’s the game, I’d rather play it than not make the call and pay $20 more a month for the same phone service.

Expansion of gambling in NY

September 9, 2011

Today’s Times Union carried an item about Mayor Jennings requesting VLTs for Albany and other upstate cities.  This comes on the heels of Gov. Cuomo’s appointment of a commission to study the possible expansion of casino gambling in the state.  Gambling is alluring to politicians because it’s a way of raising revenue without raising taxes, but will expanded gambling really provide meaningful revenue to the state and its localities?

Let’s go back to the 1970s, when Las Vegas had a virtual monopoly on casino gambling in the US.  New Jersey allowed the opening of competing casinos in Atlantic City, and, for a while, they appeared to be doing well – at least in terms of providing employment to area residents and revenue to the state.  Now, however, the area is not doing so well, primarily due to competition in neighboring states, especially Pennsylvania.  Even when things were going better than they are now, critics complained that Atlantic City residents did not get their fair share of the jobs or revenues, especially given the negative social impacts of gambling on their community.  Closer to home, Howie the Horse Samuels touted OTB as a solution to New York City’s problems.  For a while, perhaps, OTB made a positive financial contribution, but neighbors hated its parlors and it eventually went out of business, unable to turn a profit as the “world’s largest bookie.”  The rise of these two entities came during a time when they enjoyed a virtual monopoly in their markets; their decline came at a time when competition for a first constant, and later declining, amount of gambling dollars proliferated.

So what can gambling establishments in New York offer potential customers that their competition cannot?  To my mind, the only thing, at least under present law, is location.  As real estate investors know, location is an extremely important economic force for any business.  In New York, there are, I would guess, many thousands of residents who gamble outside the state.  Repatriation of their gambling dollars could have a substantial impact.

However, as the lobbyists for existing VLT properties realize, to attract significant numbers of casino patrons, New York has to offer real casino gaming – that means table games and real slot and video poker machines (other posts on this blog explain why the video poker offered at VLT facilities is far worse than the real thing, though its differences are not clearly disclosed).  Pennsylvania has transitioned from VLTs to full commercial gaming, and it has been successful – primarily at the expense of Atlantic City.   For New York to even lure its own residents from facilities in Connecticut, New Jersey, Pennsylvania and, in a few years, Massachusetts, it will have to offer something at least as good as facilities in neighboring states, and maybe, since many patrons of out of state facilities have developed loyalty to those facilities, something better.

Offering something better will require a complete overhaul of the constitutional and statutory provisions regulating gambling in New York, as well as an overhaul of the regulatory structure.  The regulations governing casino gambling in New York at present were designed for firehouse Las Vegas nights, and the agency that enforces those regulations is primarily concerned with horse racing.  VLTs are “regulated” by the Lottery, which partners with the racino operators, creating at the very least an appearance of a conflict of interest.  Fortunately, the head of the commission studying these issues in New York is knowledgeable and appears not to be afraid to stand up to industry influence.

If casino gambling is to proliferate in New York, the state also owes its citizens a duty to educate them on the hazards of gambling.  There are good materials out there – I was pleasantly surprised to see how forthright a guide from the American Gaming Association that I picked up in a Las Vegas casino was – and there should be time devoted in school to the economics of gambling, as well as to personal finance in general.  Our students are taught insufficiently about saving, the cost of credit, the cost of gambling, etc.

For me, a blackjack and video poker player, a local VLT parlor will have no allure.  However, a casino with real 9/6 Jacks or Better and a good blackjack game where the dealer stands on soft 17 and doubles after splitting are allowed will definitely keep my gambling dollars in the Albany area, if not in my bank account.