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Thanks to regulation 3.2 of the Postal Services Act - which states that there must be a letterbox every 500 metres in residential areas - business is booming for online film rental company, Video Island. Realising letterboxes are far more commonplace than video stores, Video Island is challenging the way we rent films. Launched last year, it lets browsers pick up to five films, posts them out, lets customers take as long as they like to watch them, and allows them to order more once Video Island has received them back in a pre-paid envelope. All for a fixed subscription starting at £12.99 a month, and the number of films is limited only by how fast customers watch films and post them back.

For fans of the silver screen, its 19,000 (and growing) titles promise much more choice than the average corner shop, and this is reflected in the growth in rentals - some 800,000 DVDs a month are in circulation, with the average consumer watching eight. However, while direct marketing the website through banner ads, search engine optimisation and partner sites are all key - anyone renting films online through Curry's, Argos, Tesco and MSN websites are actually going through Video Island - for founder and marketing chief Saul Klein, direct marketing means something very different.

"The average consumer will see us on their doormat twice a week, so it is this opportunity to talk to them without diluting our image that is what we're most keen to experiment on," says Klein. Instrumental in this has been the design of its envelope. Not only has it been patented specially to allow it to be both the carrier and the return pouch in-one, but it also acts as advertising space for both itself and any partners that want to tie up with it.

"The envelope unfolds via multiple perforated hinges revealing space which we want to use," says Klein. Central to this is a member-get-member tab which has to be removed before the envelope can be resealed to send the film back. Coded with a unique response element, Klein has found that 15 per cent of customers have now joined via this root alone. Other elements include personalising the mailer and adding partner opportunities which effectively turns the DVD into a direct mail piece for someone else.

"We've added another tab that people can tear off," says Klein, "which we've used as promotional space for the likes of underwear brand Figleaves. com." Because Klein doesn't want to tarnish the Video Island brand, partnerships are controlled. "Figleaves is already an internet brand, so it fits the profile of our viewer," he says, "and we're also talking to Firebox.com, the men's online gadget shop."

To make sure a link with films is kept, similar tie-ups with Expedia.co.uk and P&O Ferries included a 'Top 10 destinations in movies' to encourage users to both consider these travel options and rent a wider selection of films, and Klein says both it and partners have had an excellent response.

But it is in talking to groups of consumers that it hopes to excel most in its DM material. Already, envelopes are branded Tesco, MSN or Curry's depending on which website they have ordered their films from, and on behalf of these partners, Video Island is negotiating deals with all the main film distributors to promote their next big DVD releases. Good for them, and good for Video Island who'll also see the benefit from some who'd rather rent than buy it. "We've already promoted the new Fox animated cartoon, Bratz, to Tesco.com customers," says Klein. "This is being distributed for sales in Tesco stores, but it will also give our subscribers choice."

Already, Video Island monitors people's film choices and suggests others they may like. "This is all part of our commitment to customer service," he adds. "Each time we receive an order, an email is fired off to say thanks, and then we re-email them to say we've received the films they've posted back, so they can choose more. This coupled with receiving their films means a customer could interact with us 25 times a month. It's therefore key that everything presented to them is relevant rather than abusing their trust in us."

VITAL STATISTICS

Name: Video Island

Marketing challenge: To use its envelopes for third party ads without

alienating customers

Creative channels: Direct mail

Direct spend: Less than £1m

DM agency: Envelope design by Royal Mail

Competitors: dvd365.com, filmgold.com

ON THE SPOT

Saul Klein marketing director, Video Island

If you could send anyone some DM, what would it be, and to whom would you send it? My favourite story is the David Ogilvy anecdote. To sell airline engines you just need to send to the key decision makers. So Ogilvy sent carrier pigeons with a response tag and sure enough, sold the engines.

What one piece of advice would you give when embarking on a DM campaign? Decide exactly who you want to talk to and make a compelling offer really simple.

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