Silicon Valley company pioneers new model

Netflix.com, a newly minted Silicon Valley company, is hoping to get in on the ground floor of the emerging digital videodisc business by making itself the world’s largest rental source of DVDs through a pioneering strategy of mail-ordering the discs via the Internet.

Through its online store at http://www.netflix.com, owners of DVD players can rent or purchase DVD titles. Customers receive the discs through the post and return them in special prepaid mailers that can be dropped in any home or public mailbox.

“We saw this situation evolving where there are lots of DVD players but nowhere to get DVDs,” said Marc Randolph, Netflix CEO and president.

Availability

While an estimated 700,000 DVD players have been sold or shipped to retail outlets, only a small number of stores sell or rent DVDs. “We think rental is an entirely new model for online commerce,” said Randolph.

While rental chains such as Hollywood Video and Blockbuster are experimenting with DVD rental in a small but growing number of locations around the country, they typically stock only about 100 DVD titles — of the 1,400 (nonpornographic) currently in print. (Neflix does not rent pornographic DVD titles.)

Since its launch in April, Netflix has rented DVDs to customers throughout the United States. The company charges $4 for a weeklong rental, plus postage. The price drops to $3 each plus postage if three or more discs are rented in a single transaction.

It usually takes about two days for the disc to reach a customer’s home, but the seven-day rental clock does not start until the customer receives the DVD.

If customers wish to keep the disc, the rental is applied to the purchase price.

Changing ways

Randolph said Netflix is betting that the convenience of visiting online stores from the comfort of home or office PCs — already well proven through success stories such as bookseller Amazon.com — will outweigh the loss of spontaneity and instant gratification that’s inherent to mail order.

“If you’re the kind of person who likes DVDs and knows you’re going to watch two or three at some point during the week, I can help you,” said Randolph. “It’s true if you need it in half an hour of course I can’t get it to you.”

DVD industry players welcome the new DVD rental channel.

“It adds to the availability of DVD from another distribution standpoint in addition to regular rental stores, so it’s a positive thing,” said Emile Petrone, chairman of DVD Video Group, an industry consortium of studios and manufacturers active in DVD. “People that do shop on the Internet will find it a new service.”

Netflix has offered free-rental cross-promotions with DVD player maker Toshiba and computer firms Apple Corp. and Hewlett-Packard Co.

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