Online Rental Blog

History of online rental

Posted on August 3rd, 2006 by freedvdtrials.com

The DVD rental by mail industry was pioneered by the US film Netflix, launched in 1999 to take advantage of the power of the internet and easy delivery of DVDs by post, while eliminating hated late fees. The UK market proved different, easier for startups because of the small geographical area and ease of swift post (by contrast, in the US it can take four days for discs sent from the West coast to reach the East coast–requiring nationwide companies there to open multiple warehouses–Netflix has 30+. Companies here can compete nationally with a single warehouse, given the generally high quality of the UK postal service. Companies claim that by using first class post, up to 90% of discs will arrive at a customer’s door the next morning. Of course problems remain for the industry; we’ve heard one estimate that up to 1% of all discs get lost in the post each month.

After first gathering momentum in the UK in 2003, 2004 saw a massive market increase for British DVD rental companies, with explosive growth still expected. Market leader Screenselect mailed out some 300,000 discs in November 2004, and expects this number to triple within the next year (by February 2005 they’d hit 450,000). The situation is similar to the late 1990s mobile phone craze, before the market reached saturation. Prices are low to entice new customers, and most services offer a free trial or at least a reduced price for the initial months. The conversion rate from a two-week trial to paying subscription initially was 90%, though we understand it is now around 85%.

This decrease in free trial uptake is likely to gradually continue, fuelled by a growing number of serial free trialists, as well as subscribers lured away by lucrative offers and free trials elsewhere. For instance, in early 2005, Lovefilm offered an incredible three-months for the price of one offer, attracting many new subscribers. Unfortunately for them, this load combined with a new inventory system/warehouse move left them unable to meet demand, and customers from this otherwise excellent company left in droves due to the slowdown, though we judge by October they’d largely recovered.

Future

The DVD rental market will probably continue explosive growth for at least a couple more years as it goes mainstream, driving many high street video shops out of business in the process. By the end of 2005, it is estimated that the number of DVDs rented by post will outnumber the total DVDs and videos picked from high street market leader Blockbuster’s shelves, and the exodus to rental-by-post may even imperil pay-per-view cable offerings. So enjoy the free trials and cheap subscription fees while you can.