Amazon eyes DVD rental partnership in U.S.
Published: April 15, 2005, 9:25 AM PDT
By Reuters
Amazon.com has approached online DVD rental service companies, including Blockbuster and Netflix, to explore a partnership rather than launching its own U.S. DVD rental service, an industry source said Thursday.
The negotiations, which began in recent months, come as Blockbuster and Netflix are battling for dominance in the young industry, depressing profit margins and pushing up marketing expenses.
Amazon, Netflix, Blockbuster and Wal-Mart Stores' Walmart.com, which also runs an online DVD rental service, declined to comment.
Despite its online might, shopping giant Amazon faces a potentially expensive battle to crack the competitive U.S. online rental market. The company started its own DVD rental service in Britain in December.
Rumors 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.
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.
Blockbuster, which has about 750,000 subscribers, said it planned to spend $120 million marketing its fledgling online service in its current fiscal year.
Wal-Mart has not said how many online DVD customers it has.
Netflix spent $99 million on subscriber acquisitions in 2004, and analysts expect it to spend a similar amount this year.
Hastings has predicted that Amazon would have to spend hundreds of millions of dollars to catch up, although Amazon has said it would be able to rent DVDs to existing customers and grow the business quickly and relatively inexpensively.
In the fourth quarter, Amazon said it had nearly 47 million customer accounts, which it defines as e-mail accounts of customers who have made purchases on its Web sites around the world in the previous 12 months.
Amazon has revenue-sharing agreements with several major U.S. retailers including Target, Toys "R" Us, The Gap and Circuit City. Those pacts have not always run smoothly.
Toys "R" Us and Amazon sued each other last summer over whether Amazon violated what Toys "R" Us contended was its exclusive right to sell toys, games and baby products on the Amazon Web site. Amazon has countersued to end the partnership.
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