Video Island, a new dotcom supplying postal DVD subscription services to retailers, has secured £6m in funding to cement its position in the marketplace in the face of launches from US giants Blockbuster and Netflix.
Video Island, which operates burgeoning postal DVD subscription services for Tesco, Comet and Toys R Us among others, has raised second round funding from existing investors as well as private equity house Cazenove.
The company is one of several to have launched in the past year offering subscribers the opportunity to rent three DVDs at a time from a huge library.
Once watched, subscribers post them back in pre-paid envelopes and immediately receive the next DVD on their wishlist, which can be updated and added to via the web.
They can also read reviews online and maintain a list of up to 20 "wanted" DVDs, ranging from blockbusters like Pirates of the Caribbean to obscure arthouse classics.
With no late return fees and access to virtually every film ever made, the services - which typically cost around £15 a month - are proving a popular alternative to high street rental stores and retail purchases.
Analysts believe that the sector is set to enjoy huge growth in the coming year, but that companies will need deep pockets to survive the intense competition as dozens of fledgling sites battle for control of the market.
But they also believe that the winners could become the next eBay or Amazon because they will be perfectly placed to convert their businesses to video-on-demand services once the technology is readily available.
Taking a different tack to most of its competitors - which include ScreenSelect, Choices eRental (soon to change its name to MovieChoices.com), MovieTrak and Blockbuster itself - Video Island is attempting to build up a subscriber base through working with big name partners.
The company has already signed deals to run white label services for Tesco, MSN, Comet and Toys R Us, and founder and chief executive Saul Klein said there were more partnership deals in the pipeline.
According to trade publication Screen Digest, the British DVD rental market is expected to grow from £65m in 2001 to £400m by 2005, while the proportion of homes with DVD players is expected to rise from 46% to 83% by 2007.
Mr Klein, a dotcom veteran and former Microsoft executive, said Video Island was uniquely placed to benefit from the boom because of its partnership strategy and relationships with Hollywood studios.
Netflix, the US giant that pioneered the idea of postal DVD subscriptions three and a half years ago, is expected to launch in Canada and the UK later this year. Blockbuster, seeking to compensate for falling high street rental revenues, recently announced its own subscription service.
Mr Klein said that the fresh funding would help consolidate Video Island's position.
"The marketplace is clearly going to become quite competitive with Blockbuster and Netflix. It's important to have a significant amount of capital to make sure we can keep growing," he said.
As the idea takes off, Mr Klein added, some of the smaller operators are likely to have problems meeting demand for popular new releases while also maintaining a library of thousands of back catalogue DVDs.
Mr Klein said he expected Video Island to start offering digital delivery of films via broadband within 18 months, although he predicted the postal approach would remain the choice of most customers for the "foreseeable future".
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