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Six Questions: Scott McInnes, Founder and CEO of DVDNow Kiosks

5 Dec, 2011 By: Erik Gruenwedel

Scott McInnes

The kiosk disc rental market is well represented by the ubiquitous Redbox and Blockbuster Express vending machines. With more than 50,000 combined units in operation nationwide, kiosks account for 36% of the packaged-media rental business, including 34.5% alone by Redbox at the end of the second quarter, according to The NPD Group.

While Redbox and Blockbuster Express offer host retailers turnkey kiosks generating incremental revenue, Vancouver-based DVDNow Kiosks sells units directly to entrepreneurs and retailers seeking 100% of the revenue from both the rental and sellthrough of movies.

DVDNow has 3,000 kiosks in circulation globally, including South Africa, Norway, North and South America, Guam, New Zealand and Australia. The kiosks are all privately owned.

New-release movies are available through wholesalers linked with DVDNow. Titles can also be acquired through alternative sources. The kiosks are capable of handling consumer membership programs; online reservations; rent-here, return-there (within a client’s own network) ease of use; loyalty programs; and pre-paid rental cards.

Kiosk owners also receive online support, including software that enables them to generate business reports, control inventory and manage movie trailers online.

The company scored a coup this year when it signed a deal to license branded kiosks to Best Buy Canada, which plans to have 130 kiosks in operation by February.

Home Media Magazine asked Scott McInnes, founder and CEO of DVDNow, to explain the benefits of kiosk ownership over leasing, among other issues.

■ Why should retailers or entrepreneurs buy a kiosk instead of just receiving commissions from a turnkey unit serviced by Redbox or Blockbuster Express?

McInnes: To make money and drive consumer traffic to the kiosk and/or retailer. Redbox et al. only rent; we have four distinct revenue streams: 1. Rentals; 2. Sales of inventory; 3. Third-party advertising in national, local or regional programs. Much of what’s advertised [kiosk owners] also sells, so there’s a double bang: You get paid for the ads, and if they work, you sell more of the advertised stuff; and 4. Cross promotions. Buy a separate item, get a new-release movie or one-day game rental; buy two 2-liter Cokes, get a free new-release night, etc.

■ How is a DVDNow kiosk better than a Redbox or Express machine?

McInnes: Our kiosks have a glass front with all inventory in original cases. Customers see what’s available, and they can see quickly if this particular kiosk has a movie or game they want. Also, there are shorter lines since people waiting can see what the kiosk stocks.

Companies and entrepreneurs buy kiosks from us and keep 100% of their earnings from rentals, sales, ads and cross-promotions. Redbox reports that of their 35,000 or so kiosks, the average gross revenue is $37,000 per year. That’s $3,083 per month. If you’re Walmart, 7-Eleven, Walgreens, a secondary chain, you get $300 per month. And they put their kiosks outside. That may promote Redbox, but I’ve never seen statistics that show that any Redbox customer goes into any host store and increases its bottom line.

Our kiosks most often go indoors (we can provide outside models), and in addition to the four revenue streams, the mission of those streams is to increase store traffic, increase the number and size of average transactions, and, of course, to increase the top and bottom lines.

■ How does a DVDNow kiosk compete against Redbox or Blockbuster Express?

McInnes: The more Redbox kiosks there are, the better, generally. People have become used to movie and game rental transactions through kiosks, and are confident enough their credit card numbers won’t be sold, that the inventory will work, and that there’s a solid organization behind the business. We benefit from that (and the red color). And when compared side-by-side, people like our kiosks better — more intuitive, glass front, etc.
Also, our clients/kiosks charge more than Redbox or Blockbuster Express. Redbox, as you know, just pushed through a 20% price increase with virtually no advanced notice, proving there is demand for packaged media (as Netflix learned painfully), and Blockbuster Express now has a three-tiered pricing scheme. There is plenty of room for our clients to compete and to do better. Plus all of our machines are owned locally, and in some places clients have generated a lot of local support, particularly personable entrepreneurs from the  community.

Finally, many of our machines are in grocery and country stores that are some distance from the nearest Redbox or Blockbuster store. Many of our most successful operators are right there in the mix of ubiquitous Redboxes and doing quite well. 

■ With Warner Home Video (and other studios possibly) planning to double the embargo window of new releases to the kiosks, how does DVDNow compete?

McInnes: I suspect that individual entrepreneurs will find a way (read: through retail acquisition), and, obviously, this could be an enormous and profitable advantage for our customers.

■ Do independent video store operators understand the value of extending their retail footprint through kiosks?

McInnes: Yes, we have certainly sold to video stores expanding their brands and footprints. We can also brand kiosks in any way anyone wants, Best Buy being our largest example. But mostly we see people eagerly going into competition with — or replacement of — video stores.

■ Can kiosks work for video games?

McInnes: Games work very well. We have some customers who stock only games. They can be rented and sold for more money, and the typical length of rentals is longer than with movies; some of these are branded with game distributor store brands and logos, more so than video stores.

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