November 15, 2005

Online DVD Rentals Seen Surging

LONDON -- The online DVD rental market is expected to capture a quarter of all video rental spending in the United States and one-third in Europe by 2009 as consumers get more comfortable paying for the convenience of receiving Hollywood blockbusters in the mail.

Market research firm Screen Digest said on Tuesday that by the end of 2005, 6.3 million subscribers will have spent more than $1 billion renting DVDs over the Internet, with the market seen tripling to almost $3 billion in four years despite the growing threat of video-on-demand services.

"Our cash-rich, time-poor society values convenience very highly, and is willing to pay for it," Screen Digest analyst Angus Wood said.

The U.S. online rental business is led by industry pioneer Netflix, while in Europe the diverse number of players has led to speculation of rampant consolidation.

Netflix has been locked in an expensive battle for dominance of the U.S. market with struggling video rental company Blockbuster, which abandoned late fees at stores as part of its strategy to keep customers.

Netflix originally had plans to expand in Europe but has opted instead for the time being to focus on its domestic business. Video Island and LoveFilm are the top two in Britain, which accounts for 40 percent of Europe's subscribers.

Online retailer has operations in Britain and Germany, but has yet to launch in the United States, while Blockbuster also has a UK presence in the online realm.

Screen Digest forecast that by 2009 60 percent of all UK spending on rental will be online, quintuple the 12 percent expected for 2005.

One online rental company in Britain told the researchers that more than half its customers had not rented vides from a shop in the 12 months before signing up, an indicator that the business is creating new film-watching fans.

"Although the growth of the online rental sector will inevitably cannibalise the offline business, its overall effect will be to maintain levels of consumer spending on video rental at above $8 billion and 2 billion euros in the US and Europe respectively, throughout the forecast period," the report said.

In Germany, where consumers have been reluctant to rent videos in shops, the online market has taken off with Amango as the leading firm. German consumers are expected to spend $192 million renting online by 2009.

"Our research indicates that the unwillingness of many Germans to patronize high street video stores has made the country fertile ground for the online business," according to the report.


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