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Kiosks Expand

7 Mar, 2008 By: Chris Tribbey

A DVDPlay kiosk

In 2004, Redbox DVD rental kiosks were just a budding experiment in a few McDonald's. Just last year, there were barely 2,000 of them nationwide.

By the end of the year, there will be more than 10,000 machines, thanks to new deals that will place roughly 2,000 of them in Walgreens and about 2,700 in Wal-Marts.

The Wal-Mart deal (announced Feb. 7) and the Walgreens deal (announced Feb. 27) make it official: DVD rental kiosks aren't a fad.

“I think it's a year past the fad stage,” said Patrick Avery, editor of Kiosk MarketPlace.com, which covers all things kiosk. “It's pretty amazing, the phenomenon they've become. Redbox has overtaken Blockbuster in terms of locations.”

“As one of our core consumer benefits is convenience, Redbox seeks presence in retail locations that our consumers are already visiting, saving them a stop in their day,” said Gary Lancina, VP of marketing for Redbox.

Redbox and other DVD rental kiosk operators have taken advantage of two things: the misfortunes of brick-and-mortar video stores and the human desire for convenience. Swipe your credit or debit card at a kiosk after shopping for groceries, pick a DVD, return it at any other machine, and you're done.

Being cheaper than the video store competition ($1 a day rentals) doesn't hurt either.

“And location is their strongest point,” Avery said. “Some of the other chains have good retail partnerships; they just don't have the partnerships that Redbox has.”

Still, DVDPlay and TNR Entertainment have been making gains as well, and, seeing the writing on the wall, even Blockbuster got into the kiosk action, announcing in November it will test-launch 300 kiosks in supermarkets and malls.

But Redbox has gained the most traction and attention. It has even spawned its own fan group, “Redboxers,” who created a Web site: www.insideredbox.com, where they can track new releases, share promotional codes for free rentals, and share praises for and complaints about the machines.

“I'm pleased for them for their success in getting those contracts,” TNR Entertainment CEO and president Tim Belton, said of the Wal-Mart and Walgreens deals. “But we're not treating this as a land grab. I don't think any of us is scratching the surface of this business, or the places these kiosks could be going.”

Indeed, Maryland-based Summit Research Associates, the only consulting firm dedicated to the kiosk industry, predicts that by the end of 2009, the number of all retail kiosks in the United States will double. And with the DVD Copy Control Association's September decision to allow vendors and consumers to create CSS copy-created DVDs for themselves — opening up download-to-burn kiosk opportunities — space limitations may one day be a thing of the past. Most studios use CSS protection on their DVDs.

Of course, with a relatively new business model come problems. Customers have complained that their DVDs are sometimes scratched. Some kiosk users claim they've been overcharged when they get their credit card bill.

And a potentially troublesome issue has reared its head in Union City, Ind. Local residents, including video store owners, started a petition to have ‘R'-rated titles removed from the Redbox at the local McDonald's. This month, under threat of being fined under the city's public nuisance law, the ‘R'-rated titles were removed, a McDonald's employee at the store confirmed.

“Mothers take their kids to these McDonald's, and we had some people really upset that these movies were available,” said the city's mayor Bryan Conklin. He said he bought a gift card and used it on the machine to show that children don't need a credit or debit card to get the DVDs. “You can buy them at any store, and you don't have to be 18.”

“In Union City, Ind., the local McDonald's owner operator respectfully complied with a request from his local city council to remove the ‘R'-rated titles, despite having received no complaints from his customers,” Redebox's Lancina said. “We feel the appropriate measures are in place to allow parents and families to make educated choices regarding age-appropriate entertainment options when using Redbox kiosks … In order to rent from a fully automated Redbox DVD kiosk, you must be at least 18 years of age or older with a valid credit or debit card.”

Alan Denney, owner of a Union City video store, said the issue is also being discussed by the residents of nearby Winchester, where residents also are pushing to have ‘R'-rated DVDs removed from their McDonald's Redbox.

“Redbox can't check my age,” he said. “The (Union City McDonald's) restaurant owner said ‘Your kids can go online, can watch cable TV, are you going to restrict that too?' But that's in our homes. That's a problem we can control.”

Although Redbox is a competitor, Denney said local video store owners aren't merely going after Redbox due to fear of competition.

TNR's Belton said his company, Redbox and other kiosk operators are careful about what they put in their machines, and cautioned communities that would follow Union City's lead.

The Passion of the Christ has an ‘R' rating,” he noted. “You don't want to cut off all content because of the rating. I don't know what Schindler's List was.” (Schindler's List is rated ‘R'.)

Still, he added, he understood the concerns of Union City.

“This is a community making a decision based on what's best for them, and every company has to be responsive to what it's customers want,” Belton said.

Melissa Moore, SVP of marketing for DVDPlay, said: “Most of our retail partners have the ability to review the titles they receive. And they can veto any titles they feel aren't appropriate for their customers.”

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