DVD Subscription Services Expand

A business model pioneered by Netflix during the dot-com era appears to be one that consumers love. An increasing number of retailers are adopting it, including movie-rental giant Blockbuster, with its "Filmcaddy" service, and retail chain Wal-Mart, which launched its nascent DVD rental program in late October.

The fundamental concept is a monthly subscription fee rather than a per-disc rental charge. The concept also eliminates late fees, the bane of movie fans everywhere. For approximately $20 per month, you can keep films as long as you wish, and get others after your current ones are returned. The recurring monthly charges are billed to customers' credit cards whether or not they use the services, like health club memberships or premium-channel cable television fees.

A vast number of movie fans prefer this to the irritation of paying late fees. The only drawback is that ordering movies in advance removes the spontaneity of browsing the aisles in a store. Blockbuster earned $692.6 million on late fees in 1999, 15.5% of its total revenues that year, according to the Wall Street Journal.

Netflix was the first to allow people to keep films indefinitely, allowing them to choose from a huge online catalog and supplying prepaid return mailers. The optical disc's small size and lightweight packaging made possible something that would have been impossible with VHS tapes, which would have cost approximately three dollars apiece to send each way in the mail.

Serious "Netflickers" rent as many as 20 films per month, company executives say. Netflix has a catalog of approximately 12,000 titles, far more than the few hundred available in even the most well-stocked store. Four years after opening its virtual doors for business, Netflix has 742,000 customers. In a few weeks of test-marketing its rental subscription service in 500 stores in Houston, Phoenix, Seattle, and the New York metropolitan area, Blockbuster pulled in 200,000 customers. Movie and music club Columbia House will begin its own DVD subscription service next year.

DVD rental clubs are making a serious dent in the bottom lines of traditional video rental locations, which have seen a 13.5% decline in videotape rentals this year. DVD rentals are up 105% compared to the same period last year, according to statistics compiled by research firm Alexander & Associates. Video rentals in the US total $14 billion annually, according to industry estimates.