Its a tech superstar that seemed to come out of nowhere, attracting close to a hundred million users worldwide in just a few short years.
But despite its popularity, there are growing concerns that some of these users didnt know what they were signing up for, and have been misled – even tricked – into handing over more than they meant to.
Now the government is considering stepping in to protect consumers from this abuse, and toughen up regulation to end the dubious practices that have enabled this tech giant to thrive.
I am talking about Netflix, and the perils of free trials.
This week, the Department for Business released its green paper on modernising consumer markets. The aims – to increase productivity and prioritise consumer choice – are admirable, as is the focus on competition.
But it all goes horribly wrong when we get to the alarm over introductory offers for new customers, including discounts and free trials.
In a week that saw British Gas hike prices by 5.5 per cent (branded “unjustified” by the government), the issue of uncompetitive markets, from energy to broadband to financial services, is very much a hot topic. The green paper promises to crack down on what it calls “excessive penalties for loyalty” and protect customers who do not switch providers, even when better offers are available.
According to the report: “exploitation of these customers by charging them significantly higher prices and providing poorer service is a sign of a market that is not working well and should be tackled vigorously”.
This reveals a rather dubious attitude to how markets work. Despite the language used, customers are not being “trapped” in exploitative deals. They are free to switch. It is fair to assume that those who choose not to just dont value the potential savings enough to spend time looking for a better deal.
The most attractive discounts therefore go to the consumers who are willing to search for them, as is true when buying anything else.
Now, there may be concerns about clear information and the ease of switching. Here the government has actually done important work, from introducing the Current Account Switch Service for banking (try it – its easy and it works), to offering genuinely helpful advice on changing energy suppliers. The process for energy is remarkably straightforward, can be done entirely online, and the savings can be as much as £300 a year.
If information is misleading and the switching is made as convoluted as deleting your Facebook account, thats something the state can fix. But if the system is there and people just arent using it, we should assume its because they dont care that much.
Banning companies from offering discounts to attract new customers is just going to penalise people who value finding the cheapest deal to subsidise those who are less price-sensitive.
The counter-argument goes that vulnerable customers, such as the elderly and those with disabilities, are disadvantaged. But the solution is to offer targeted help and information to these groups, not to distort the whole market around them.
When it comes to subscription services like Netflix and Amazon Prime, the governments stance gets even more draconian.
As evidence for the danger of free trials, the report cites the fact that 98.8 per cent of consumers end a subscription when cancellation is the default, while only 40 per cent do so if they have to actively cancel.
But all this proves is that people – or at least 58.8 per cent of us – are susceptible to “nudges”, and that companies make use of this (as does the government itself, with things like pensions auto-enrolment).
Every so often, there is a wave of outrage that Amazon and Netflix might tempt users to sign up for a months free service, then quietly keep charging them when it expires. But there is nothing exploitative about this – consumers are free to cancel before they are charged, or to avoid signing up at all. They can also cancel as soon as they spot the charges.
The most price-sensitive customers will do this, while those who dont notice (such as the Times restaurant critic Giles Coren who tried to start a rebellion against Amazon a few years ago for three years of charges he hadnt paid attention to) have only themselves to blame.
The real problem with this paper isnt that it penalises tech-savvy millennials who will happily set up multiple Netflix accounts to get the most out of free trials. It is its insultingly patronising view of consumers as helpless victims incapable of deciding the best energy supplier, broadband provider or paid-TV service for themselves.
Alas, this is the same government that has just decided adults cannot make their own choices about sugar consumption, so perhaps we shouldnt be surprised.
With the revelations about how our personal data is being used and abused by tech companies, there are very real ways consumers could benefit from the protection of regulation. But having tough conversations about who owns data and how to reclaim power from giants like Facebook and Google is much harder than banning Netflix free trials.