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2010 DVD Rental Industry Commentary

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.

After first gathering momentum in the UK in 2003, 2004 saw a massive market increase for British DVD rental companies, with explosive growth in 2005 and 2006. 2006 saw the merger of the two market leaders Screenselect and Lovefilm under the Lovefilm name, which now accounts for well over half of UK online rentals. However, bricks-and-mortar giant Blockbuster controls over a quarter of the online market and has increased emphasis on its online division, with quality probably just as good. To give a sense of scale, market leader Lovefilm mails out over 2 million discs per month, over three times as many as just one year ago. In fact, in late 2008, online DVD rentals surpassed rentals on the High Street for the first time.

We have seen considerable consolidation at the company level, with rental sites falling from a peak of 42 in 2006 to 18 in 2008, and 12 by 2010 (really only 6 if you remove the sites "powered by" Lovefilm. We believe this reduction in competition allowed Lovefilm to put up its most popular three disc tariff from the industry standard 15 to 16 pounds. Hopefully the period of consolidation is over, with the market settled into dominance by Lovefilm with as much as two-thirds control, Blockbuster with around a quarter, then the second tier of Cinema Paradiso and Outnow, followed by an assortment of smaller and niche providers. The worst result for the consumer would be closure of too much of the competition, allowing more monopolistic pricing, but we don't believe this will occur.

On the consumer side, the DVD rental market will probably continue strong growth for at least several more years as it goes mainstream. UK leader Lovefilm has been offering movie downloads for several years, but in an October 2008 interview, their marketing director noted that "customers just don't seem ready for it."

Even with the global credit crunch crisis intensifying in late 2008, the online DVD rental market continues to grow strongly, with UK market leader Lovefilm up 40% year on year and similar strong growth in the US for Netflix. It seems people are forgoing more expensive pastimes and relying on the cheap entertainment and versatility of online DVD rental. The exodus to rental-by-post will obviously hurt high street video shops, many of which will probably close, and may even imperil pay-per-view cable offerings. So enjoy the free trials and cheap subscription fees while you can.

We at UK-DVD-Rental-Guide.com will continue to guide the way with our reviews and rankings, helping you pick the best.

 

 

 

 
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