update Netflix will take over Wal-Mart's DVD rental business, but the feisty pioneer of online DVD rentals said investors should not expect a huge upswing in subscriber growth.
Under the deal, announced Thursday, Netflix and retailing giant Wal-Mart will co-promote DVD sales and rentals. Wal-Mart will shut down its online rental service to concentrate on DVD sales.
Netflix, however, said in a statement: "The agreement would not materially impact the company's current subscriber growth or financial performance and, as a result, the company is not revising the guidance it provided on April 21."
Still, shares of Netflix jumped 32 percent in premarket trade, rising to $20.50 on the Inet electronic brokerage, from a close of $15.50 on Wednesday on the Nasdaq.
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The deal calls for Netflix to promote Wal-Mart DVD sales to its 3 million subscribers, and Wal-Mart will offer its online customers the opportunity to sign up with Netflix at the current subscription price for a year.
Wal-Mart is the world's largest DVD retailer, and Netflix is the world's largest online DVD rental service.
Walmart Online, in an advertisement that appeared early Thursday on its Web site, said the company will not accept new members and offered a link to Netflix, where Walmart.com customers can sign up for the DVD rental service at their existing Wal-mart rates for one year.
Netflix will take over Wal-Mart's online service, allowing its customers to pay the $12.97 per month guaranteed by Wal-Mart for 12 months, the companies said.
The number of Wal-Mart subscribers were not disclosed. Netflix has previously said it would reach 4 million subscribers by the end of 2005.
The Wal-Mart Web ad also provided a link to allow its subscribers to transfer their services, including request lists for specific DVDs, to Netflix.
Netflix will promote Wal-Mart's online DVD sales business both online and in mailers sent to its subscribers.
The partnership radically changes the competitive landscape for the nascent online DVD rental industry pioneered by Netflix, which more recently has been struggling to compete against larger rivals such as Wal-Mart and Blockbuster
Online retail giant Amazon.com, which launched an online DVD rental service in Britain last year, has also been expected to enter the U.S. rental market.
Wal-Mart launched its online DVD rental service in late 2002, but never promoted the service heavily. Its departure from the fast-growing online rental industry leaves only Netflix and Blockbuster, which has reported having more than 750,000 subscribers.
The two companies have been locked in an expensive price war since last fall, when Blockbuster launched its online service and twice undercut Netflix's subscription price.
The partnership of Wal-Mart and Netflix could discourage Amazon from bringing its U.K.-based online rental service to the United States.
Story Copyright © 2005 Reuters Limited. All rights reserved.
CNET News.com's Dawn Kawamoto contributed to this report.
