The basic premise of online movie rental is pretty simple. First, a customer must join the service and then they create a list of titles they would like to see. Then the DVD’s on the list are mailed to the customer. The customer then watches them and sends them back in a prepaid envelope. The growth and popularity of online movie rental can be tied to several advantages over the tradition movie rental store. This model of business has revolutionized the movie rental industry for several reasons.
The first reason is the idea that you can join a club and not a DVD one at a time. The effect on this is you are charged no matter if you take advantage of the service or not. This is a way to provide a consistent revenue stream from online DVD rental. The opposite is true as well. Since many programs offer unlimited rentals for a flat monthly fee, the consumers who rent a lot of movies become losing propositions for the company. This is because the cost of the prepaid envelopes will exceed the fee paid by the customer, but for the majority of consumers it is profitable.
Second is the idea of no late fees. You can basically keep the movies as long as you would like. You will still be charged so the online DVD rental program doesn’t care. They actually will save money because they will not be paying for any postage. So the long you keep the more profitable it becomes.
Third reason is the selection. Consumers ten years ago had to go there local store to pick from the movies they had. If they want some obscure title they could be out of luck. The options you had for movies was limited to the amount of shelf space that your rental store had. Since the internet has the ability for limitless shelf space the choice of movie is seemingly endless. Netflix alone boasts over 100,000 titles and Blockbuster online lists 80,000. These libraries will continue to grow and consumers now have so much choices it is overwhelming.
Does this mean the end of your local DVD rental store? The market will decide and the local DVD rental stores are more than likely at risk compared to than the big chains. Now, large chains such as blockbuster have an online DVD rental program while continuing to maintain their over 6500 locals. Having this infrastructure allows Blockbuster to offer something that the other online DVD rental programs do not, in-store exchanges.
Even with the option of in-store exchanges, Blockbuster is not the market leader in online DVD rental and they really are playing catch up to Netflix. Their business model has revolutionized the DVD rental industry and the market will decide what business model consumers like.