Blockbuster to rent DVD flicks

Starting this month, video rental giant Blockbuster Video will begin renting movies on DVD disks to customers at more than 500 stores.

The move could encourage sales of both stand-alone DVD players and PCs with DVD drives and curtail sales of competing technologies.

Blockbuster, a business unit of Viacom, said it will make available more than 350 titles for rent, and will offer 150 titles for sale. In addition, the company's stores will offer rentals of DVD players from Philips Electronics and conduct in-store demonstrations of the technology to drive demand.

DVD is a high-density storage technology for storing data or playing movies. The medium allows for more storage than magnetic tape technologies such as VHS tapes and floppy disks and also offers improved sound and audio.

Blockbuster said in most cases, DVD rentals would be priced similarly to video rentals, while renting DVD players won't exceed $14.99. The average price to buy a title is around $25, the company said.

While other, smaller retail chains as well as online sites such as Netflix have pioneered DVD rentals, Blockbuster's move signals a key endorsement for the technology, analysts Said.

Sales of DVD titles and players are already increasing at a healthy clip, said Ted Pine, analyst with Infotech Research. Because "Blockbuster is the 800-pound gorilla in the video rental world," Pine said, its decision puts the foot of the industry's largest retailer "on the gas."

The move has significance for PC owners, too. Infotech estimates that 1.2 million DVD players will be sold in the U.S. market this year, while approximately 1.5 million DVD-ROM drives have been sold for use with PCs.

Studios are salivating over the prospect of snaring additional viewers, but are starting to realize that they also have to add interactive features, Pine noted. One of the first to do so is New Line Cinema, which will release the science fiction movie Lost in Space on DVD with hooks to Internet sites and games to increase the appeal to PC users. The title is slated for release in October.

More studios may want to jump on that bandwagon, if some analyst predictions turn true.

Forrester Research has predicted that by the year 2002, DVD-equipped PCs will have an installed base of 53 million units, compared to only 5.2 percent of households in the U.S. that will own a stand-alone (non-PC) DVD-Video player. Forrester thinks the PC will become a more viable consumer entertainment device because it will be the largest DVD platform.

Blockbuster's decision has other implications in the rental industry--DVD rentals may negate Circuit City's drive to promote Divx as a limited-use DVD format for rental markets.

Originally developed by Circuit City and Digital Video Express, Divx is a technology that permits consumers to buy a disc for about $4.50 and use it for 48 hours after the first playback. Divx caused an uproar among DVD owners because DVD players couldn't read Divx discs, although Divx players could read DVD titles.

With DVD titles not available for rent last year due to initial movie studio opposition, the Divx technology appeared to have the potential to be a serious competitor to DVD. Now, instead, Divx players may never get off the ground. Circuit City said its second half fiscal year earnings could be reduced by 45 cents per share if it doesn't find outside investments for Divx.

"The net effect of Divx, beyond generating controversy and hand-wringing, is that it has basically gotten DVD Video (vendors) off the dime and positioned as a product for both rental and sell through," Pine observed.