The DVDs-by-subscription trend
Wal-Mart and Blockbuster's forays into the DVD rental market popularized by NetFlix, as revealed a few months ago, are detailed in this Wall Street Journal story (subscription required). This shift and viewing and rental behaviour means that some people are even beginning to cancel their premium cable channels such as HBO in favor of a subscription-based DVD service which delivers not only the latest movies but also popular HBO and Showtime dramas.
The moves come as the $14 billion home rental market is adjusting to the explosive growth of DVDs and a sharp decline in videotape rentals. For the first nine months of this year, videotape rentals fell 13.5% compared with the same period last year, according to Alexander & Associates, a New York research firm. DVD rentals jumped 105%, in contrast, although the dollar value of the DVD market is still only about half the size of the videotape market, Alexander estimates.
One target of the new services: people who have backed off movie rentals because they hate paying late fees -- or "extended-viewing" fees, in Blockbuster-speak. It's also a way of generating consistent revenues, especially since many customers have the fee billed regularly to their credit cards. That means Netflix or Blockbuster is getting your $20 a month even if you're on vacation or working too hard to take in movies.
The biggest challenge facing the new services may simply be persuading consumers to rethink the way they pay for movie rentals. But it isn't that much of a leap for people who are increasingly accustomed to paying monthly fees for entertainment offerings, such as HBO, satellite radio, Internet access, music-download services on the Web and magazines.
...Blockbuster is skeptical about the online services, no doubt in part because the company wants customers to keep visiting its 5,000 stores. They argue that people usually rent on impulse, often on the way home from work or shopping. But they acknowledge that late fees have soured some people on renting and they hope the new services will lure those customers back. In the past, late fees have been a big source of revenue for Blockbuster. While the company no longer discloses the figure, in 1999 late fees accounted for 15.5% of total revenues, or $692.6 million.
Blockbuster clearly is not starting the program to save customers money. In the current test markets, Blockbuster Chairman John Antioco says, "the average customer spending is up after they join the program." After all, while you might rent six movies one month, there's always going to be those months you're on vacation.
...Netflix has signed up 742,000 customers, four years since it launched. Blockbuster has signed up more than 200,000 customers at the 500 stores that had the program before last week. Blockbuster is testing in New York area, Seattle, Phoenix, and Houston, and last week it added Salt Lake City.