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Online Rental a Growing Segment of Overall Market

19 Aug, 2004 By: Judith McCourt

Online rentals barely registered on the overall rental meter in 2000 according to Video Store Magazine's Top 100, but by 2003 online rental revenue had surged to more than 3 percent of the overall rental picture.

While Netflix has owned the online space, with its rental revenue jumping from $36 million in 2000 to more than $272 million last year, the competition is stepping up as Wal-Mart and Blockbuster are anxious to grab a piece of this rental cybermarket.

The environment in the past few years has been ripe for spawning subscription rental services. Topping the list of traditional DVD renters' frustrations in 2002, according to Video Store Magazine's Annual Consumer Home Entertainment Study of more than 600 DVD households, were returning the DVD, late fees and not enough time to watch special features. Couple these dissatisfaction factors with PC penetration in households approaching the 75 percent mark and increased Internet connectivity, and some consumers were ready to explore alternatives to the traditional video store trip.

According to Video Store Magazine's 2004 Consumer Home Entertainment Study, 3 percent of DVD households said they use an online subscription service as their primary source of rental titles.

An in-depth look at this growing segment of the rental market shows that the percentage of households that use online rental services increases with the frequency and volume of DVDs rented. Of households that say they rent at least once a week, 6 percent say they most frequently rent online. The same holds true for households that are the highest-volume renters, defined as those who had rented on average 8.7 videos in the four-week period preceding the study, with 6 percent of those households saying they rent online.

Cyber-renters are more affluent than their brick-and-mortar counterparts, with 85 percent saying their annual household income is at least $40,000, compared to 58 percent of households that rent at traditional retail outlets.

When it comes to owning a DVD player, online renters are more likely than not to be multiple-DVD-player households. In addition, 84 percent of online renters say they have owned their DVD players for two or more years. This suggests that as the DVD market matures, more and more consumers may test the online rental model.

It follows that all of the online rental households are PC households. However, more than 60 percent of these households say they have at least two PCs. This segment of renters also tends to be heavy Internet users, with more than half saying they are online at least 14 hours per week. By comparison, 76 percent of households that rent at the video store have a PC, and 25 percent spend more than 14 hours a week surfing the Web.

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