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Can Online Rental Sub Growth Continue?

27 Feb, 2005 By: Kurt Indvik

The recent price war between the various online rental services seems to have generated customer attention, to be sure.

Online subscription rental services almost doubled their market share of the total rental business in the fourth quarter of 2004, compared to the same quarter in 2003. According to the NPD Group, online services took 15 percent of the rental market that quarter, compared with about 8 percent in 2003. Rental volume in units for online services shot up 87 percent.

Meanwhile, brick-and-mortar rental volume dropped 6 percent in the fourth quarter, according to NPD.

So, is it time to start changing your business model if you're a traditional rentailer?

So far, the jury is still out on the subscription model. And with the price cutting the online services have been going through, the jury will certainly be taking a closer look at the profitability of the model, even as its volume has risen. Most rentailers I have spoken with, and the VSDA's own white paper on subscriptions, do not see a way to make the model work.

Online rentals made quite a leap in the previous quarter. Can that pace be maintained? Unlikely, as probably the price wars have attracted the additional customers they were designed to excite. But the growth spurt clearly shows customers are ready to try a new option to make their busy lives easier. Not surprising, then, that Blockbuster launched it's “end of late fees” program. Of course, anecdotally, it may be that customers taking advantage of the “no late fee” deal are putting a crimp in Big Blue's copy depth. I wonder if that might end up driving more folks to try the online service. An interesting way to grow Blockbuster.com's business, perhaps.

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