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Prepares to battle Netflix in UK

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It has taken just a year for the UK online DVD rental market to be launched, grow and consolidate and now two of the biggest proponents, Screen Select and Video Island have merged, creating a clear market leader.

That market leadership always needed to be sorted out quickly, given that US monster rentals company Netflix has already said that it will launch in the UK this year.

Netflix is growing revenue at 78 per cent a year and is already on track to make 2004 something close to a $500m year. Blockbuster has just copied the Netflix model in its native US, and Blockbuster is already operating in the UK and may introduce this new online rental model here soon.

The potential arrival of these two competitors was probably enough to make the investors in Screen Select and Video Island realize that a merger was the only way to take a nationwide lead, before the US giants get into their stride here.

The combined businesses will ship over 300,000 rentals in September, equivalent to over 70 high street rental stores, and they expect this figure to treble in the next 12 months.

Video Island began with a strategy of teaming up with leading UK brands such as Tesco, MSN, Comet and Toys 'R' Us to bring online DVD rental to the mass-market. In less than one year of operation, ScreenSelect has successfully created the UK's largest branded online DVD rental service and has recently announced partnerships with Dixons and Wanadoo.

The management team of the merged company will see Saul Klein, CEO of Video Island, remain as CEO. William Reeve and Alex Chesterman, founders of ScreenSelect, will take on the roles of chief operating officer and chief commercial officer respectively.

UK researcher Screen Digest says the UK DVD rental market is expected to be worth £376.1m by 2006, and already 14.1m households own a DVD player. One million of these households rent a DVD every week.

The Netflix model that all of these companies follow is based on having a set number, usually three, DVDs out at any time, which are selected online and delivered through the post. As many online selections as the customer wants, can be registered and as soon as one of the DVDs is returned, the next one on the customer’s wish list is posted to him. It is operated on a flat monthly charge, with no late fees.

Video Island’s monthly fee was £20 a month and the Screen Select fee was £14.99. We presume that the higher fee will be adopted until the US competition arrives.

Copyright © 2004, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.

Related stories

Screen Select signs up Wanadoo and Dixons
UK DVD rental firms merge
Netflix: the fly in the ointment of VoD

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