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Online DVD rentals set to surge in U.S., Europe

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 used to the convenience of receiving Hollywood blockbusters in the mail.
/ Source: Reuters

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 used to 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 projected to triple 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 is 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 to focus on its domestic business for now. Video Island and LoveFilm are the top two online rental players in Britain, accounting for 40 percent of Europe’s subscribers.

Online retailer Amazon.com 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.

At the same time, pay-TV and Internet companies have been rolling out video-on-demand services at breakneck pace, enabling users to pay for and watch films and programs whenever they want.

Screen Digest forecast that by 2009, 60 percent of all U.K. spending on rental will be online, five times the 12 percent expected for 2005.

One online rental company in Britain told the researchers that more than half its customers had not rented videos from a shop in the 12 months before signing up, an indicator that the business is creating a new crop of home film watchers.

“Although the growth of the online rental sector will inevitably cannibalize 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 ($2.3 billion) in the U.S. 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.