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Adams: Online Rentals To Top $1.9B in 2007

28 Jun, 2007 By: Erik Gruenwedel

Spurred by the success of Blockbuster Inc.'s Total Access, online movie rentals are expected to increase 41%, to $1.9 billion, this year, according to new data from Adams Media Research.

The surge marks a turnaround for U.S. video rental spending, which has been on a steady decline since generating $10.3 billion in revenue in 2001.

The domestic rental business has fallen 18% to $8.4 billion in 2006, according to Adams Media Research.

“The five-year decline in the video rental market will finally end in 2007 due in part … to consumer interest in Blockbuster's Total Access,” said Eric Wiener, senior analyst with the research firm.

The report said online rental pioneer Netflix Inc. continues to dominate Web-based movie rentals with 75% market share but Total Access, with 800,000 subscribers in the first quarter, surpassed Netflix for the first time in quarterly growth.

The two rival services combined to add 1.3 million subscribers in the first quarter.

Adams Media Research projects online subscription spending to increase 68% from 2007 to 2011 with $3.2 billion in revenue and 37.5% total video rental market share.

The report said combined online and in-store movie rentals totaled 2.5 billion in 2006.

Separately, audit firm PriceWaterhouseCooper has projected online subscription rentals to reportedly reach 20 million members and $3.4 in revenue by 2011.

“It's a rare 20-year-old business that gets a chance to reinvent itself the way video rental has through online subscription services,” said Adams Media Research president Tom Adams. “But the appeal to the consumer of unlimited rentals with no late fees is now clear.”

In related news, Netflix said it will cut $1 from its $14.99 monthly two-movie-at-a-time rental plan.

Netflix has not changed pricing for its popular three-movie plan for $17.99 despite Blockbuster cutting $1 from a recently launched mail-only rental program.

Edward Woo, media analyst with Wedbush Morgan Securities in Los Angeles, agreed that Total Access has been a catalyst for the resurgence in video rentals.

“Just the fact that [Blockbuster] is branching out to the online business has stimulated [video] rental and forced Netflix's hand,” Woo said.

He said in-store movie rentals will continue to dominate for the next several years followed by an eventual shift to online.

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