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McDonald's Orders More McDVD

2 May, 2005 By: Holly J. Wagner

McDVD is expanding. McDonald's has plans to grow its Redbox DVD vending machine business from the 140 in its trial to at least 1,200 machines in up to 10 major markets by year's end.“They're going to be happening fast and furious this summer,” said Redbox spokesman Greg Waring.

He would not confirm a source's report that McDonald's plans to spin off the Redbox division as a minority-owned subsidiary that will serve its restaurants and supermarkets.

McDonald's launched the largest Redbox trial last spring, putting more than 100 machines in its Denver corporate stores. The machines have been tested in Denver; Washington, D.C.; Hartford, Conn.; and Las Vegas in McDonald's restaurants and in grocers Giant, Smith's Food & Drug and Stop & Shop in the Northeast. Kiosks also are on trial in a couple of office buildings.

“Redbox envisions at least 20,000 such kiosks and accompanying revenue of greater than $1 billion in the United States alone in the next several years (with equally large market potential in Europe and Asia),” according to a corporate document. To get there, the company plans to expand beyond DVD rental by offering other products, although Redbox will stick to rentals for the near term, Waring said. McDonald's tested that concept in the Washington, D.C., marketplace in 2003, but ended up eliminating all of the product offerings except DVD rental.

Houston appears to be the next target market for Redbox, but Salt Lake City also has been mentioned.

Redbox, a McDonald's subsidiary, has contracted with Solectron to manufacture the new machines, which will hold 500 units each.

“We are thrilled to be working with Solectron to provide increased DVD capacity and better overall functionality to our consumers,” said Gregg Kaplan, venture leader for Redbox. “The superior design and capabilities of this new Redbox DVD kiosk will enhance both our consumers' and retailers' experience, and will help ensure we reach our plan to deploy 1,200 Redbox kiosks domestically in 2005.”

The company will replace the existing DVDPlay machines in Denver with Solectron machines by the end of the year. Those machines hold 102 or 350 units each. Redbox anticipates continuing its relationship with VPD providing product for the machines.

According to a source close to the program, the Redbox machines yield $2,000 to $4,000 per square foot in revenue per year, and each unit is profitable within three months of launch. In McDonald's locations, the machines charge $1 a day per title and offer the top 40 DVD titles.

With 30,000 restaurants in 119 countries, the fast-food chain's outlets exceed the international store count of the top three video specialty chains: Blockbuster Inc., Hollywood Entertainment Corp. and Movie Gallery.

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