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McDonald's to Expand DVD Vending Machines in Restaurants

24 May, 2004 By: Holly J. Wagner

Fast-food giant McDonald's plans to put hit-stocked DVD vending machines in all 105 of its Denver restaurants this summer and expand the program nationally if the summer test yields the expected results.

The machines, which hold 102 or 350 DVDs, will grace the lobbies and exteriors of McDonald's restaurants with $1, one-night rentals. The machines are cashless; consumers use credit or debit cards to rent.

“At some locations, they may decide to have 100 at one door and 100 another instead of 350 all in one place,” said Dee Cravens, EVP and chief marketing officer at DVDPlay, which provides the machines.

The breadth of the potential distribution network should give video specialty chains pause: the kiosks will offer 30 top hits at a time and let customers return the rented discs at any McDonald's in the area, not just the one where they get the disc.

“I think what they are looking at is to establish customer loyalty and selling other goods there,” Cravens said, noting the machines offer several possible revenue streams. “The machines are advertising enabled, so I imagine that will kick off a program in time. They are also email-enabled.”

With 30,000 restaurants in 119 countries, the burger chain's outlets exceed the international store count of the top three video specialty chains, Blockbuster, Hollywood Video and Movie Gallery. In the United States alone, McDonald's addresses number about 14,000, compared to the 4,579 stores with which Blockbuster ended the first quarter, 1,935 Hollywood Video and 2,200 Movie Gallery locations.

“We're not concerned with the announcement,” a Blockbuster spokesman said. “Our focus will remain on our customers and we will continue with a growth plan around three key initiatives – the growth of our rental category, led by a store-based movie subscription program and followed by an online rental subscription service by the fourth quarter; the development of a movie trading business at Blockbuster stores; and the development of our game store-in-store concept, Game Rush.”

The McDonald's test also goes head-to-head with Buena Vista Home Entertainment's EZ-D test, which was expanded to Denver late last year. The disposable discs are available in supermarkets and convenience stores in the Denver area, but SRP is about $6 each and the discs have no bonus materials. The discs have reportedly done well as an add-on for Papa Johns pizza restaurants, which recently started a nationwide offer of one of three titles free on DVD with the purchase of each large specialty pizza. The chain plans to change the selection of discs periodically.

Like Wal-Mart, McDonald's can afford to use DVD as a loss leader. The chain's goal is to get customers into restaurants, where the smell of the food becomes a powerful incentive to buy.

McDonald's earlier tested TikTok DVD Shops, a smaller vending machine with rental DVDs, in the Adams-Morgan neighborhood of Washington, D.C. The dozen TikTok machines were to remain in place even though machines with a broader range of products were removed late last year, spokeswoman Lisa Howard said.

McDonald's bought TikTok, which made the Redbox convenience kiosks, from its creator, Automated Distribution Technologies of Exton, Pa. The DVDPlay kiosks are also expected to operate under the Redbox name.

McDonald's also offers wireless hotspots at many of its restaurants and has announced plans to offer music downloads.

“Working with McDonald's, it is amazing to watch that unit inside McDonald's grow, and how seriously they are taking this business,” Cravens said. “Part of their strategy going forward, they know that entertainment is something consumers gravitate toward. They are leveraging that opportunity going forward. They are looking at this mobile society we are in and saying ‘we are in the catbird seat.’

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