Online DVD rental pioneerNetflix has postponed plans to launch in the UK and Canada to concentrateinstead on its US business.

The move comes as Netflixfaces increasing competition on its home turf from Blockbuster's new onlinerental service and from the expected entry of into renting DVDs bymail.

It is understood thatNetflix had earmarked some $3.6m (£2m) for marketing and launch costs in theUK.

Observers said thatNetflix's decision not to launch in the UK proves how the online DVD market hasmatured rapidly in the past few months and how difficult it would be forNetflix now to gain a strong foothold.

Leading players Video Islandand ScreenSelect announced in August that they were merging, and Blockbusterhas already launched its online DVD rental service. By comparison, Netflixlaunched its successful US business at a time when there were few rivalcompetitors.

Saul Klein, CEO of themerged Video Island and ScreenSelect combine, said: "The UK is an incrediblycompetitive market. When Netflix launched in the US, they had a three and ahalf year window before other brands and companies took the businessseriously."

Meanwhile, Blockbuster, issued a statement saying: "Blockbuster was interested, and not entirely surprised, by the news that Netflix has again elected to delay the launch of an online service in the UK. Netflix will find the UK to be an extremely tough market with well over 20 competitors and with Blockbuster the best known and most used movie rental store in the country already established as the on-line market leader."

The news that a powerfuloutfit like Netflix has decided to postpone its UK launch has also come assomething of a relief to many UK players. Klein commented: "It's a fantasticopportunity for us to build a great independent British brand in its place."

As well as offering aconsumer facing brand in the form of ScreenSelect, Video Island has partneredwith a range of companies like Dixons, Tesco, MSN and Toys 'R' Us to allow themto offer customers an online DVD rental service.