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Kiosk War: Redbox vs. E-Play

3 Aug, 2009 By: Erik Gruenwedel

The competition in the rental kiosk market is rising.

In the burgeoning market for the ubiquitous $1-per-day DVD rental kiosks, competitive advantages revolve around kiosk location, title selection, disc quantity and transaction time, among other features.

Redbox’s announcement Aug. 3 that it would install 2,400 kiosks in Kroger-operated grocery and convenience stores appeared to underscore the Coinstar Inc.-owned juggernaut’s year-end goal of operating 20,000 kiosks nationwide.

When kiosk vendor e-Play Inc. (400 kiosks in operation) recently rolled out test DVD/video game rental kiosks at 77 Wal-Mart locations, in addition to select Best Buy stores, Wall Street took notice of the Columbus, Ohio-based upstart’s sudden presence in Redbox territory.

Indeed, Eric Wold, media analyst with Merriman Curhan Ford in New York who covers publicly-traded Coinstar, last month attempted to assuage “some concern amongst investors” regarding the impact e-Play could have on the “ultimate rollout potential” for Redbox.

In his tale-of-the-tape research note, Wold comparison-tested separate e-Play and Redbox kiosks located in and around six Best Buy stores in Austin, Texas. Wold found that Redbox kiosks carried an average of 155 titles with an average dispense time of 19 seconds per transaction compared to an average of 100 titles and a dispense time of 40 seconds per transaction at e-Play kiosks.

“We found that Redbox kiosks held an average of 55% more movie titles than an average e-Play kiosk, “ Wold wrote. “E-Play kiosks took an average of 21 seconds longer to disperse the DVDs once selection had been made and credit card swiped.”

The analyst noted “dozens of locations” for Redbox at numerous major retailers, including McDonald’s and Walgreens compared to scant visibility for e-Play kiosks.

“The lack of locations relative to Redbox is a clear disadvantage when trying to gain awareness with consumers as well as to win new retail accounts,” Wold said.

He also questioned e-Play’s video game rental selection (Redbox does not rent games), which he said averaged about 17 titles per kiosk in Austin.

“We believe this poor offering is likely to turn off video game renting consumers and negatively impact e-Play’s perception within the market going forward,” Wold said.

Needless to say, e-Play co-founder and CEO Alan Rudy didn’t agree with the report, which he characterized as biased and unprofessional.

Rudy said that following installation July 22 of new software, dispensing times at e-Play had overtaken Redbox, with customers receiving their initial rental disc in as little as five seconds. He said the company was rolling out so-called “expansion stations” that allow customers to order and pay for rentals at one screen and pick titles at another for a faster transaction.

He also questioned Redbox’s timing of the start of a transaction — an argument that soon sounded like a commercial airline CEO discussing competing departure and arrival times.

More importantly, Rudy said Wold completely missed e-Play’s primary point of differentiation: buying back used video games and movies. Customers receive a credit to their credit card at Wal-Mart and store credit at Best Buy.

“The reason we are in Wal-Mart and Best Buy is because in the same footprint they get video game buyback,” Rudy said. “The reason our kiosks don’t have a lot of video game rental titles is because we are not really in the video game rental business, we are in the video game buyback business.”

E-Play, whose kiosks are manufactured by NCR Corp., re-sells used product via its kiosks or third-party retailers.

Rudy said that at high-volume rental kiosks such as Wal-Mart, e-Play units carry more titles than Redbox due to the machine dispensing a physical disc separate of the sleeve. As a result, e-Play kiosks can hold up to 3,500 discs, compared to about 1,500 in a Redbox unit.

“At Best Buy, it is sort of different animal, the real focus is entirely on video game buy back,” he said.

He said buy back revenue is “add-on” revenue for e-Play on top of the $1-per-day rental business Rudy said Redbox has already proven to be commercially viable.

“It makes that 9-foot retail footprint a more valuable footprint,” Rudy said. “We want to get a lot more revenue out of our footprint.”

The CEO admitted that buy back kiosks have performed better at Wal-Mart and Best Buy than at gas stations, where gamers could get vouchers for gas purchases.

“Gamers told us they didn’t want to spend game money on gasoline,” Rudy said. “They view that as video game currency, which is what the retailers want: the ability to compete against Game Stop.”

He admitted that Redbox is ahead of the entire industry when it comes to studio distribution deals (including its much ballyhooed Sony deal), but said he was very happy with his current Disney deal.

“I’m hoping we see more Disney and Sony [deals] and less Universals,” Rudy said.

The executive said he remained upbeat with NCR (which owns a stake in e-Play) despite it becoming a primary backer of Blockbuster’s nascent Express kiosks. NCR also recently acquired The New Release kiosk brand (soon to be Express).

“It’s an interesting situation,” Rudy said. “We have a completely different machine [than Blockbuster]. We didn’t expect [NCR] to compete with us. It leads to some odd conversations. But they are still doing what we asked them to do.”

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