Customers win in war of online DVD rental firms

The battle between Netflix and Blockbuster for supremacy in the fast-growing online DVD rental business is a dream-come-true for consumers.

Subscribers, who order movies online and receive and return them through the mail, have already seen their monthly fees fall dramatically even as the firms have spent millions of dollars expanding their roster of available titles and improving service. The online rental business has caught on because it offers tremendous convenience and anyone renting at least four to five movies a month can save money. Customers pay a monthly fee and can keep the movies as long as they want with no late fees.

On paper, Blockbuster's mail-order DVD delivery service is a far better deal than what industry pioneer Netflix offers. Blockbuster charges $3.15 less a month for the comparable three-movies-at-a-time Netflix service and throws in two free in-store rentals. Over the course of a year, that means a consumer gains access to more movies and pays nearly $38 less.

The service gap between the two companies appears to be narrowing, but in a monthlong, head-to-head comparison I found Netflix's website quicker to navigate and more of its titles immediately available. Netflix also delivered movies slightly faster than Blockbuster.

''We created this category," said Steve Swasey, a spokesman for Netflix, which launched its online service five years ahead of Blockbuster. ''We did it first, and we continue to do it better."

In mid-May, ''Mystic River," the Clint Eastwood-directed movie that was released in 2003, was immediately available on Netflix but required a ''long wait" on Blockbuster. There was also a long wait on Blockbuster for ''Star Wars: Episode II -- Attack of the Clones" and short waits for the ''Wizard of Oz" and, more recently, for ''Finding Neverland." All of the movies were immediately available on Netflix.

The sluggishness of the Blockbuster website was particularly annoying. I was often able to search out three titles and add them to my queue on Netflix in the time it took me to complete the same process for just one title on Blockbuster.

Shane Evangelist, senior vice president and general manager of Blockbuster Online, said he had never received a similar complaint and was puzzled by it. ''I'm clicking through our site now, and it's very quick for me," he said.

I tried searching Blockbuster on another computer here at work and encountered the same difficulty. I also tried ordering movies on my home computer, which has dial-up service, and found processing times slightly slower with Blockbuster than with Netflix.

Netflix of Los Gatos, Calif., had similar problems when it created the online DVD subscription business in 1999, but no more. A recent study by Web surveyor ForeSee Results rated Netflix number one in customer satisfaction among the top 40 Internet retailers. The Netflix website is easy to navigate, processes commands quickly, and offers all sorts of bonuses, including movie reviews, personalized movie recommendations, and the ability to swap movie-request-lists with friends and family members.

Based on my test, Netflix also delivers movies slightly more quickly, but not always. Both companies have 30 or more distribution centers around the country and both have a distribution center in Worcester. Both firms say they can usually deliver a movie in one day -- that's one day from the time the company receives a returned movie -- but that rarely happened in my test.

For example, I placed orders for three titles with each company on a Monday afternoon and received my three Netflix titles on Thursday and my three Blockbuster titles on Friday. I sent all six back on the following Tuesday. Netflix sent me the next three titles on my list separately -- on Thursday, Friday, and Saturday. Blockbuster sent me all three on Friday.

Blockbuster's Evangelist said the company is moving to improve its delivery times and increase its stock of movies. It has asked the US Postal Service to scan Blockbuster return envelopes and send the firm an electronic notification so customers don't have to wait until the envelopes are actually delivered before having the next movie on their to-see list sent out.

Evangelist said Blockbuster is also running a test in the Dallas area using its local video stores as mini-distribution centers. Evangelist said using local stores should speed up delivery times in some areas of the country and increase the online service's inventory of movies.

Both Netflix and Blockbuster keep expanding their inventory, offering customers more and more movies to choose from. Netflix currently stocks 45,000 titles and Blockbuster 40,000.

My initial bias was that Blockbuster's online service would mirror what's in its stores, which tends to be heavily oriented toward standard Hollywood fare, but that may be incorrect. Both companies carried two somewhat obscure foreign films recommended by Globe movie critic Wesley Morris.

At Netflix, both the 1997 ''A Taste of Cherry" from Iran and the 1988 ''Gang of Four" from France were immediately available. Blockbuster had both movies as well, but there was a ''short wait" for ''A Taste of Cherry."

One big advantage of Blockbuster's online service is the opportunity for occasional spontaneity. Each online subscriber receives two coupons for in-store game or movie rentals each month.

The online DVD subscription business is one of the few bright spots in the movie rental industry. Wal-Mart bailed out of the business last month, but Kagan Research says the growth potential is enormous.

DVD subscription revenues have grown from almost nothing in 1999, the year Netflix started, to $522 million last year. Kagan expects the business to grow to $931 million by the end of this year and $2.9 billion by the end of 2011. All of the growth is coming at a time when the overall movie rental category is shrinking.

Blockbuster, which reported a $1.2 billion loss last year, said three months ago that it had signed up 750,000 online subscribers and expected to have 2 million by the end of March next year. Evangelist said the company is on target to meet that goal.

Netflix, with just over 3 million subscribers, reported a $20.8 million profit last year, but it lost $8.8 million in the first three months of this year and expects to lose as much as $15 million for the entire year as it steps up spending to fend off Blockbuster.

''We are facing the most severe competition a company can face," said Netflix's Swasey. ''It's a pretty tough battle right now."

Bruce Mohl can be reached at mohl@globe.com.