October 15, 2002, 12:00 AM

WalMart.com enters the DVD movie rental business

WalMart.com is testing online rental of DVD movies with an approach similar to NetFlix.com and a price that undercuts NetFlix. If successful, Wal-Mart will roll the service out in the first quarter.


If a retail category starts making noise in the mass market, you can bet the world’s largest merchant will be all ears. Now, with online DVD rentals gaining attention, Wal-Mart Stores Inc. is offering them at Walmart.com.

And in typical Wal-Mart fashion, it’s undercutting the competition on price. WalMart.com is offering a monthly subscription service at $18.86, compared to $19.95 charged by Netfllix Inc.’s NetFlix.com. Other than price, both e-retailers offer a similar deal: a subscriber receives three DVDs in the mail, and as each one is returned, a new one is mailed. Subscribers can choose from a universe of 12,000 DVDs. Shipping is free, and prepaid mailers are provided for returns. About a third of U.S. households have DVD players. Wal-Mart says a limited number of customers will be able to sign up for the DVD rental service before it is officially launched in the first quarter of next year.

Wal-Mart and Netflix also each offer a free one-month trial period.

Netflix, which reported $36.4 million in second-quarter revenue, up 98% from $18.4 million a year ago, says it welcomes Wal-Mart to the DVD rental market. But it says that it expects to maintain a comfortable lead over its new competitor. “We’re glad to see them enter the market,” a Netflix spokesman says, adding that the company’s biggest challenge has been getting the public used to renting DVDs online. “They’ll convince consumers that this is a cool new way to rent, and that will benefit Netflix.”

Netflix, which has built a base of more than 740,000 subscribers in its four years of operation, says Wal-Mart will have some catching up to do in the DVD rental business.

“They did a good job of looking at what we do and replicating our mailer system, but there are a lot of intricacies they haven’t figured out yet,” the spokesman says. He adds that Netflix’s biggest advantage is that it has built up a system of 11 distribution centers that enables it to mail DVDs to half of the U.S. within one day. He claims that Wal-Mart has a single distribution center, making the service less timely for many consumers.

Wal-Mart, which will initially use a single distribution center in Georgia for its DVD rental business, admits that timely fulfillment is one of the potential problems it will test over the next few months. "If we hear from customers that this is an issue, we may use additional distribution centers across the country,” a spokeswoman says.


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