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Netflix sees Amazon entering DVD rentals

The company said it will cut prices for movie rentals to compete with competitors such as Blockbuster, Wal-Mart Stores and now Amazon. plans to enter the DVD rental business in a move that will put the online retail giant in direct competition with Netflix.

News of Amazon's intentions were disclosed Thursday afternoon by Netflix founder and CEO Reed Hastings during the company's earnings call. Netflix said it would cut prices to ensure future growth in the face of competition from Blockbuster, Wal-Mart Stores and soon Amazon.

Reed Hastings

"We started hearing rumors about two weeks ago, and we were able to confirm them," Hastings said in an interview. "We think we will compete successfully with them because we have great scale, we ship 3 million DVDs a week, and we have five years of experience in this market."

Hastings' comments, coupled with the company's price cuts, caused Netflix's stock to nosedive in after-hours trading. The stock closed at $17.43 Thursday afternoon but plummeted to $10.99 after the market closed.

An Amazon spokeswoman stopped short of confirming its plans to offer DVD rentals and instead presented a reason to enter the business.

"Our customers have encouraged us to offer low-priced online DVD rentals, but we have no announcement to make at this time," Amazon spokeswoman Patty Smith said.

Netflix, which rents DVDs on the Internet and delivers them via the U.S. Postal Service, plans to introduce a movie download service in 2005 in partnership with TiVo, which sells personal digital video recorders. Hastings said that initially, Netflix will see modest interest in Internet downloads, but it expects the partnership to grow over time.

"We think DVDs will be more dominant in five years than they are today," Hastings said. "The evolution to downloading will be slow. The DVD will last as long as the gas engine."

Netflix said Thursday that it has 2.23 million subscribers.

CNET's Jim Hu contributed to this report.