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Six Questions: MOD Systems’ Anthony Bay


Anthony Bay MOD
Anthony Bay

By : Erik Gruenwedel | Posted: 12 Mar 2010


In the escalation of self-serve kiosk DVD movie rentals, MOD Systems has taken a path less traveled. Instead of packaged media, Seattle-based MOD Systems has opted for electronic distribution of movies and music to portable media devices, USB and Secure Digital (SD) cards through an open standards platform that supports MP3 and Flash-based storage.

Backed by Toshiba and NCR Corp., MOD Systems operates a library of 4,000 movies through distribution deals with Warner Bros. Home Entertainment Group, which includes Warner Home Video, and Paramount Digital Entertainment, among others.

Home Media Magazine caught up with MOD Systems CEO Anthony Bay to find out why an SD card is better than a DVD.

HM: How is an SD card any different than a DVD? Can it hold the same amount of content as a disc, including bonus material and high-definition?

Anthony Bay: SD cards have certain unique capabilities that make them an ideal medium for studio content.
 
First, SD cards were designed to support both protected and unprotected content, making them perfect for personal photos and video as well as protected content such as movies and TV shows. More than 2.5 billion SD cards have been sold, and many millions of consumer electronic products, digital cameras, mobile phones and PCs include SD card slots.

Second, SD cards combine the benefits of physical media with the benefits of digital. They allow portability of content, as with optical discs, but integrated copy protection offers the potential to copy from the card to a hard disk or network, which DVDs and Blu-rays do not allow, except via separate digital copy files. Furthermore, unlike major movie DVD and Blu-ray discs, SD cards are by definition reloadable and thus offer green environmental benefits as well as more flexibility for both content owners as well as consumers.

Third, SD cards can be loaded at kiosks with just the titles consumers want, providing a richer catalog that is never out of stock and doesn’t require returns. Conversely, DVDs are replicated in advance and put into the distribution and retail supply chains and are subject to the complexities of forecasting, inventory management and related supply chain costs. 
 
Fourth, SD cards are capable of storing the movie and bonus material. However, no clear standards yet exist for displaying bonus content. MOD supports the SD Association specifications for audio, video and content protection, which are open published standards that can be utilized by any product with an SD slot. MOD is working with others to propose metadata extensions as part of the SD Association that will allow the richer playback of content such as bonus material.

Finally, SD cards are capable of far greater capacity than DVDs or even Blu-ray Discs. Today’s SD cards are the second generation, called SDHC, with capacity up to 32GB. The new generation, introduced in 2009 and called SDXC, offers capacities up to 64GB today and up to 2 terabytes in the near future. That is enough to store 40 to 50 high-def movies.

HM: How receptive are studios to self-serve digital distribution of movies via kiosks compared to the Internet?

Bay: The studios have strong reasons to support the growth in digital content transactions for rental and sale. They realize that we live in a multichannel world that includes both home and out-of-home merchandising and purchasing of content.

Making digital content available where people shop, work and play is key to broadening the penetration of digital. In addition SD cards add a very important value proposition to consumers of portable digital content that is not bound to a specific device. Content can be loaded onto SD cards and played back on compatible devices with secure SD slots. Initially this will likely be laptops, netbooks and PCs but quickly expand to TVs directly and via SD card support in different types of set-top boxes, including Blu-ray players.

HM: With majority owner NCR actively rolling out Blockbuster Express kiosks, will MOD Systems incorporate its technology in these kiosks?

Bay: We will continue to deploy digital kiosks together with NCR. NCR is a shareholder in MOD Systems but not a majority owner. We initiated technical trials in Q4 2009 and commercial deployments will begin in Q2 of this year. We expect to install in multiple retailers this year. Our objective is to test the consumer adoption, use and buy rates in different classes of retail trade.

HM: Can Redbox’s first-mover status in kiosk vending of home entertainment (22,200 units) be overcome?

Bay: Redbox has been very successful at DVD vending. They have developed well-designed and executed physical logistics systems to support the DVD rental model. We have great respect for them. However, it is not clear how that expertise translates to digital content. Digital content is not subject to the First Sale Doctrine, and its economics, rights and deployment/operations execution are very different from discs — with complex technology requirements and unique licensing agreements. DVDs are a simple standard that are easy to use and understood by consumers. There is still no replacement in the digital world for a DVD, including a range of technical and usability issues that must be overcome. Redbox machines are, for the most part, placed in low-tech, high-traffic locations, which will eventually also work well for digital. However, in the early adopter phase of digital vending, kiosks likely will do better in assisted selling environments within retailers. This is typical of the historical evolution in self-service in other categories such as ATMs, airline check-in and photo kiosks.

HM: Will you incorporate MP3 music vending with movies? What has been the response to MP3 kiosks?

Bay: Yes. MOD Systems began originally by providing kiosks and in-store vending systems for music provided by CD burning. As we realized that burning optical discs in a store wouldn’t scale for a variety of reasons, we shifted our emphasis to end-to-end digital delivery. We have rights to over 5 million tracks from all the major music labels and thousands of independents and will be loading MP3s in retail by the middle of this year. We will support loading on SD cards, USB drives and directly to a range of portable devices.

MOD Systems, together with NCR, are the only companies working to deploy multiple content types into retail kiosks. We support movies, TV shows, music tracks and music videos, and will expand that to include other types of digital content such as games.

The key to success in kiosks is to generate a high volume of transactions, and we have found that different locations and venues, even within a single store, are suited for different types of content in support of that objective.

HM: Are you working with video stores beyond Movie Gallery to repurpose retail brands into kiosks and digital distribution?

Bay: Yes. The MOD and NCR technical trials involve Hollywood Video, Blockbuster and other locations. We will begin commercial deployments in several additional retailers in the coming months. We are exploring the use of the retailers’ chosen branding as well as NCR’s branding in its “operator model,” where it finances the kiosks and operates them similar to what it does with its DVD kiosks. In addition we will be looking to upgrade existing NCR DVD kiosks to support digital.

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