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Online Rental Market Heats Up

15 Jun, 2003 By: Kurt Indvik

There are a number of conference sessions that look at the current and future impact of DVD at this week's DVD in 50, a conference, produced by Video Store Magazine and the DVD Entertainment Group, but none of them center on the business of online rentals, though doubtless that topic may come up. But there is little argument that without DVD, its sellthrough pricing model, it's smaller size and weight (compared to VHS) Netflix, the category leader for the moment, would probably not exist. Indeed, the whole retail category, which at our last count numbered about 40 different providers, including Wal-Mart and Filmcaddy.com, backed by Blockbuster, would not exist.

And yet, because of DVD, Netflix has attracted more than a million customers and will post a net income of about $3 million on revenue of about $62 million for the second quarter of this year, it's first quarter in the black. Certainly DVD has made life more worth living for Wal-Mart executives who, besides dominating the sellthrough business, are now ratcheting up its online rental component, looking to dominate the category trail blazed by Netflix. (See this week's cover story.)

Of course when Wal-Mart launched its online rental business last October, the rally cry from Netflix VP Ted Sarandos was “Bring it on!” Netflix chose to see Wal-Mart's entry into the business as a major credibility boost for Netflix' own business model, and indeed, there is truth to that. Now Wal-Mart is indeed bringing it on, after its initial foray into online rentals, building its library of titles quickly up to 13,000 and adding five new distribution centers to the one it started with (Netflix boasts 20, currently), and adding several new options to its rental pricing.

The quietly burgeoning online rental business is just one more major impact DVD has had on the home entertainment business and the mature home video business, which has been transformed on all levels by the digital disc. The discussions this week by the retailers and suppliers gathered for this conference will doubtless be focused on maintaining this tremendous growth, while at the same time avoiding the pitfalls hubris can bring, whether you are a dominant studio or dominant retailer.

Certainly of much interest is the looming issue of the next generation of DVD, high definition DVD, and the current face-off of competing technologies. With digital delivery still finding its way, the industry, says Ben Feingold, president of Columbia TriStar Home Entertainment in a VSM One on One dialogue this week, is on the cusp of either taking the initiative with a high-definition next generation product, or allowing another media delivery platform to take packaged media's place in the home video arena. It'll be interesting to see if the home video industry can seize the opportunity now and move forward on high definition.

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