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Amazon enters DVD rental market in the UK
By Scarlet Pruitt

Amazon.com Inc. dipped its toes in the online DVD rental market this week with the launch of a service in the U.K.

The online retail giant introduced two monthly plans on Thursday for renting DVDs at its Amazon.co.uk site, as it made its anticipated move into the market.

U.K. consumers can sign up to have four DVDs of their choice delivered to their homes for £7.99 (US$15.40) a month, or six DVDs for £9.99 a month. The DVDs are delivered in batches of two or three, depending on the plan, and users aren't charged late fees. Subscribers send the DVDs back in a prepaid envelope to receive their next batch.

The service is similar to Blockbuster Inc.'s U.K. service, although Blockbuster offers unlimited DVD rentals for £13.99 a month. The number of movies subscribers can rent depends on how fast they watch them and send them back to get their next batch.

Blockbuster's service mirrors that of U.S. market leader Netflix Inc., which offers unlimited rentals for $17.99 a month.

Market research indicates that consumers normally rent five or fewer movies per month, Amazon.com said. Its service appears to be designed to complement its online DVD sales shop. It is offering a 10 percent discount on DVD purchases to customers who subscribe to its rental plans.

Jupiter Research analyst Olivier Beauvillain doesn't think that Amazon will be hampered by not offering unlimited rentals at this time.

"The plans can be easily changed in the medium term. That's the nice part about being on the Internet," Beauvillain said.

Beauvillain sees online DVD rentals as a good opportunity for providers until video-on-demand becomes more widely available, in two to three years.

Roughly 60 percent to 80 percent of online households in Europe have DVD players so there is decent market demand, he said. For the services to be successful, they should have extensive movie catalogs, and take into account postal rates in each market, which could cut into providers' margins, Beauvillain said.

"I think part of the reason that Netflix didn't enter the U.K. market is because of the high postal rates," he said.

Beauvillain estimated that postal rates in Europe are about two times higher than those in the U.S. They can be a significant factor in deciding whether providers enter certain markets since offering customers free postage to send and receive DVDs is so central to the business model, he said.

Amazon representatives in the U.K. could not say if the company has plans to offer the rental service in other countries. Chief Executive Officer Jeff Bezos said in a statement that Amazon is determined to be the best place to rent DVDs.

Posted December 10, 2004 04:13 PM | TrackBack (4)