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Kiosk Operators Seek to Capitalize on Gallery Woes

17 Oct, 2007 By: Erik Gruenwedel

DVDPlay kiosk

Movie Gallery's bankruptcy filing underscores the futility of the brick and mortar DVD rental business model, said the chief executive of DVDPlay, a movie rental kiosk company.

Charles Berger, president and CEO of Campbell, Calif.-based DVDPlay, said the company spent more than $30 million perfecting a database and network supported proprietary Web-based kiosk capable of holding upwards of 80 titles and 500 DVDs.

Units cater only to new studio movies released day-and-date with Tuesday DVD sellthrough. The kiosks do not carry HD DVD or Blu-ray Disc titles, which Berger attributed more to a lack of consumer demand than available storage.

Titles rent for $1.49 the first day and 99 cents per day thereafter with a credit card.

He said the kiosks are linked via wireless cellular modem or DSL connection to accommodate digital downloads and burning should that market develop.

DVDPlay has 1,100 kiosks located primarily at supermarkets such as Safeway, Albertsons, Dominick's, Tom Thumb, Vons and Genuardi's. It plans to locate 2,000 additional units nationally in 2008.

The kiosk DVD rental industry, which includes Redbox (4,400 units), The New Release (1,900) and DVDPlay, represents about 1% of movie rental entertainment revenues and is expected to grow to 25% of the business in 2011, according to Adams Media Research.

“The overall trend in retail towards self-service automation, particularly in the DVD rental space, is driven by the fact that the economics at retail continue to be very challenging,” Berger said.

He said there are few retail examples whereby the business caters to one narrow customer: the movie renter. He said traditional rental companies such as Blockbuster Inc. and Gallery are hamstrung dealing with escalating employee costs and significant retail footprints.

“Our economics are quite strong because we only need five square feet of retail space and no on-site staffing,” Berger said. “And we can be open 24/7.”

Gary Lancina, VP of marketing for Redbox, would not comment specifically about Gallery but said the company, which is majority owned by McDonalds, was continuing to grow.

“[Our] business model ($1 rentals) is transforming the industry,” Lancina said.

Blockbuster CEO Jim Keyes has made no secret his desire to significantly shrink his company's retail footprint, including possibly branded kiosks.

Berger didn't deny the existence of dialog with Blockbuster and Gallery about co-opted kiosks but said there was nothing to discuss.

“The kiosk is clearly going to be the survivor in this market,” he said.

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