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Amazon Enters Online DVD Rental Market in Britain

Times Staff Writer

Attention Brits: Amazon.com Inc. is sending DVDs by post to chaps who can watch them on the telly and keep them more than a fortnight without paying a shilling more for the privilege.

And, analysts are betting, the Internet retail giant will probably use its British movie rental service as a prototype to prepare it for a looming battle across the pond with U.S. companies such as Netflix Inc., Wal-Mart Stores Inc. and Blockbuster Inc.

Pioneered by Los Gatos, Calif.-based Netflix, online DVD renting has grown in popularity because there are thousands of titles to choose from and no late fees. Amazon, which developed the online book business and has since become an Internet retail powerhouse, has long been rumored to be eyeing online DVD rentals.

“I was surprised that they started in the U.K. and not the U.S., but it was a shrewd move if you consider the competition in the U.S.,” said Steve Weinstein, an analyst for Pacific Crest Securities. “The company has some inherent advantages over the competition in the U.K.”

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Hearing Amazon’s footsteps, Netflix in October dropped its rental subscription price from $21.99 to $17.99, which sent its stock price plunging 41% then. Soon after, Dallas-based Blockbuster announced its entry into the market.

The British rental market has seven competitors, including Blockbuster, though none has the online reach of Amazon.

Jorrit Van der Meulen, Amazon’s director of subscriptions, said the company saw Britain as a ripe target. “The prices here are very high and the customer experience is pretty poor,” he said. “We set out to change that.”

Van der Meulen wouldn’t confirm whether the company would launch in the U.S. market.

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“I can’t speculate on what we are going to do in the future,” he said. But he added, “We are very well positioned to offer this service globally.”

Competitors in the U.S. said they were ready. They noted that the Seattle company’s approach in Britain was unique because it was restricting the number of rentals -- Amazon is offering plans to rent four or six DVDs a month -- while Netflix and Blockbuster offer unlimited plans.

“Most competitors are not very competitive, they just try to do what you do and try to do it a little bit cheaper,” said Netflix Chief Executive Reed Hastings. “They have shown yet again they are a very creative competitor.”

Blockbuster in a statement said that it believed its online service was superior. “But if customers prove to want a low-cost limited proposition, we’ll offer one,” the company said.

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Hastings said Netflix was on target to have 2.5 million subscribers by the end of 2004 compared with 1.5 million one year ago. Blockbuster currently has about half a million online subscribers.

Amazon shares rose $1.10 to $39.82, while Netflix shares rose 42 cents to $11.73. Both trade on Nasdaq. Blockbuster shares fell 13 cents to $8.87 on the New York Stock Exchange.


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