June 8, 2005 4:00 AM PDT

DVD upstarts carve out niche businesses

Gene Field didn't set out to be a Netflix rival, but his customers told him it made too much sense not to try.

Field and his wife are co-owners of Tampa, Fla.-based AnimeNation.com, a community Web site and online and offline store that specializes in Japanese animation. Like Netflix, their year-old RentAnime.com subsidiary is offering DVD rentals by mail for a monthly fee. But there's a big difference: Every single movie in their catalog is anime or anime-related.

AnimeNation.com might not make the Fields rich through a multimillion-dollar public stock offering, but their service is appealing to a niche market that Netflix and its big rivals aren't addressing. It also shows the potential staying power of small online rental outlets toiling in the shadows of the giants.

News.context

What's new:
A handful of companies is quietly building DVD rental businesses under the noses of rental giants.

Bottom line:
Catering to niche markets, small rivals carve out DVD rental market specialties while Netflix, giants skirmish.

More stories on DVD rentals

"We've had our share of growing pains," Field said. "Inventory demand has been an insatiable monster, which we kind of underestimated. But we're catching up. We're growing."

RentAnime.com is one of a handful of companies quietly building businesses under the noses of Netflix, Blockbuster, Amazon.com and other DVD rental giants. For the most part, they're ignoring the price wars and mergers of their bigger competitors even as they lead their capital-rich rivals in technological innovations such as video on demand.

Executives at Netflix--fresh from last month's market-moving alliance with erstwhile rival Wal-Mart Stores--have little patience for talking about market segments that bring in customer numbers less than seven digits. The company recently passed its 3 million subscriber mark. Blockbuster, the main rival of Netflix today, has somewhere north of 750,000 subscribers and hopes to hit the 2 million mark by early next year.

"It's a business in which scale has become a key contributor to financial success," Netflix Chief Financial Officer Barry McCarthy told financial analysts at the JPMorgan Technology Conference last month. "If you want to be successful in the business, it's important that you be large or figure out how to get large fast."

It's a very different story at San Francisco's Greencine, a DVD rental service focusing on a number of niche content areas--not the "National Treasure" crowd, its employees say--which has built up a loyal group of "tens of thousands" of subscribers in its third year of operation.

"We see ourselves as more of a supplemental service in the DVD rental field," said Craig Phillips, one of the company's editors. "Diversification seems to be a key, as well as being creative. We're really filling in gaps that aren't catered to by Netflix or the other big services."

Aiming for the niche
Indeed, the niche--whatever it may be--is king for these Netflix rivals, who eschew the Hollywood mainstream in favor of subculture film buffs who will line up for "The Rocky Horror Picture Show," swoon over B-grade zombie flicks, or trade trivia about 1970s samurai films as easily as sports fans reel off batting averages.

Field's anime service is a good example. Anime fans, who often call themselves "otaku" in a reference to the Japanese pop subculture they identify with, have long made up one of the most active online communities, trading film information and even subtitling and distributing their own releases.

More than a dozen other companies, such as Wanted List and Video Takeout, focus exclusively on adult titles, which neither Netflix nor

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superborrownet.com is free and rocks for dvds.
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