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Report: Kiosks to Decline in 2012

9 Sep, 2010 By: Erik Gruenwedel

Are the days of the $1 DVD rental kiosks numbered?

Analysts at J.P. Morgan apparently think so, saying ongoing growth of kiosk vending, spearheaded by Redbox and Blockbuster Express, among others, will soon be undercut by burgeoning growth of streaming and video-on-demand (VOD).

Indeed, VOD, which has been little more than an afterthought for the past 20 years, is lately getting the significant support from major studios, cable and satellite operators, and related consumer electronics manufacturers and retailers.

Major retailers Walmart, Best Buy and Sears, in addition to Amazon, Blockbuster and Apple, have launched or expanded VOD services. Netflix, which has created considerable buzz for its streaming service, is launching a standalone streaming service in Canada this fall. Amazon is reportedly set to bow its own subscription-based streaming service in the fall as well.

Studios see VOD as a margin-accretive alternative to DVD/Blu-ray Disc rentals, in addition to replacement revenue for declining package media sales.

“We believe adoption of online video streaming and downloading services will accelerate dramatically in 2011 … and be promoted by major retailers,” J.P. Morgan analysts wrote in the August report. “DVD kiosk revenue opportunity [as a result] will peak in 2011, owing to loss of share of the home entertainment market to the online video services.”

Dan Rayburn, principal analyst with Frost & Sullivan, said Coinstar-owned Redbox is vulnerable to an influx in digital distribution, including streaming, because their current business model revolves around packaged media.
“They have no digital offering. … They are in a hard spot,” Rayburn told KioskMarketplace.com, alluding to the fact Redbox cannot deliver content directly to the television.

Coinstar, of course, is working to develop digital distribution that could involve both its kiosks and the Internet.

Eric Wold, analyst with Merriman Curhan Ford in New York, downplayed Redbox’s need for digital distribution, arguing that consumers are comfortable with multiple rental distribution channels.

“We continue to believe [consumers] are likely to use more than one rental channel,” Wold wrote in a note.

In addition, subscription-based streaming generates low margins for studios, a reality that has undermined Netflix’s ability to offer much more than dated catalog fare.

Mindful of its dearth of quality content, Netflix recently opened its wallet to pay $1 billion over five years to a variety of studios for speedier access to their movies and TV programs. The online DVD rental pioneer also inked distribution deals with pay-TV service Epix, and this week, Nu Image/Millenium Films.

Laurence Berlin, analyst with First Analysis Corp., in Chicago, said widespread penetration of Redbox kiosks, coupled with availability of high-definition Blu-ray Disc rentals, makes packaged media rentals a better choice in the near term.

“[Digital distribution] will take several years to play out,” Berlin told KioskMarket.com. “I suspect Coinstar has a smart management team that is working on this.”

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