Wal-Mart Quits Online DVD Biz May 22, 2005 11:33AM

Under the agreement, Wal-Mart will offer its online customers the opportunity to sign up with Netflix for a year at a monthly subscription price of $12.97. In return, Netflix will promote Wal-Mart DVD sales to its 3 million subscribers.

Retail giant Wal-Mart Latest News about Wal-Mart on Friday bailed out of the online DVD rental business and will refer customers to Netflix Latest News about Netflix, a move that notched up the battle in the movie rental business.

Top movie rental chain Blockbuster Latest News about Blockbuster fought back immediately with an offer of two free months of DVD rentals to Netflix and Walmart.com customers who switch over to Blockbuster.

Given Wal-Mart`s considerable clout among consumers, a plug from the Bentonville, Ark., behemoth may put pressure on Blockbuster and was seen as a big boost for Netflix.

Under the agreement, Wal-Mart will offer its online customers the opportunity to sign up with Netflix for a year at a monthly subscription price of $12.97. In return, Netflix will promote Wal-Mart DVD sales to its 3 million subscribers.

Wal-Mart Chief Executive John Fleming said the retailer is looking to focus on DVD sales and other products and services that integrate back with its stores. The decision was ``really a question of focus,`` he said.

Adi Kishore, a senior analyst with the Yankee Group in Boston, said the deal provides a lift for Netflix.

Shares of Netflix jumped 14 percent Friday -- touching their highest level since October, when the company cut prices to compete with an online service launched by Blockbuster.

Backing from a company as big and powerful as Wal-Mart shows that Netflix ``(does) have a brand and potential Web-based functionality that`s potent,`` Kishore said.

Netflix customers pay a subscription fee and get movies by mail, with no late fees. Blockbuster offers a similar service.

But companies renting DVDs in stores or online may all be running on borrowed time, as technology allows consumers to download their movies at home or watch them on demand.

However, Kishore said that such a major shift won`t happen overnight.

In the meantime, Wal-Mart`s departure from the online rental industry leaves only Netflix and Blockbuster.

The companies have been locked in a price war since Blockbuster launched its online service last fall.