It has been rumored for quite some time that Amazon was getting close to entering the DVD rental market as a competitor to Netflix, Blockbuster, and Wal-Mart. In fact, the rumor that Amazon would enter the U.S. online DVD rental market sparked a price war late last year between Blockbuster and Netflix, which pioneered online DVD rental and now controls about 75 percent of the market.
Amazon is going to enter the market in the US, but with a twist. Amazon wants to partner with a provider rather than launch their own service. They have approached online DVD rental service companies, including Blockbuster and Netflix to explore this kind of partnership. This comes as a surprise as Amazon has its own DVD rental service in Britain which it started in December.
It is probably a smart move on their part as profits have have been dropping in the on-line video rental service. Industry subscription rates for customers have dropped by at least 20 percent and marketing costs soared in the past six months.
Netflix Chief Executive Reed Hastings said the company was prepared to run at break-even in the current fiscal year, and possibly beyond, in a bid to sign up 4 million U.S. subscribers by year's end, and to reach 20 million by 2010. It has more than 3 million now. Meanwhile, Blockbuster, which has about 750,000 subscribers, said it planned to spend $120 million marketing its fledgling online service in its current fiscal year.
Netflix and Blockbuster will probably work extra hard to land the Amazon contract. With 47 million paying customers and the Internet Movie Database in its hip pocket, Amazon will dramatically transform the online DVD rental market within months of entering it. It doesn't take much imagination to see an "Add to queue" button appearing beside Amazon's DVD listings and a "Buy it now" button beside those of its DVD-distribution partner once this deal is done.
If that "add to queue" button points to Blockbuster, Netflix might end up looking like the one-theater town that the new freeway bypassed.
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