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Blue or Red: Why One Retailer Chose Blockbuster Kiosks Over Redbox

15 Jun, 2011 By: Erik Gruenwedel

Redbox has more than 30,000 disc rental kiosks nationwide, more than three times the footprint of rival Blockbuster Express.

Yet, Don Tovar, supply chain category manager with ExtraMile, the 500-store convenience chain owned and operated on the West Coast (and another 50 stores in Florida) by Chevron, opted for Blockbuster Express despite getting pitched by Redbox and Universal Studios — the latter attempting to bow its own line of interactive kiosks.

Express kiosks are owned and operated by NCR Corp. under a (now disputed) license agreement with Blockbuster LLC, which is owned by Dish Network Corp.

What’s interesting is that in the end, the ubiquitous Redbox brand and Starbucks-like footprint lost out to subtleties such as release windows, future proofing and customer service, among others.

Tovar said the decision came down to four points of differentiation: The first being Express’ ability to get new releases (some at premium prices) from studios on street date four weeks before Redbox.

“That was huge for us and gives us a great advantage over not only Redbox, but also the other primary offering in the market place, which is Netflix,” Tovar said.

He said Express kiosks’ ability to hold nearly twice the number of discs of a typical Redbox unit was “very important to us,” considering the average ExtraMile location has just 2,400 feet of retail space, thereby putting a premium of available floor space.

“We simply don’t have available space for double or triple [the number of kiosks] as both Redbox and Blockbuster have moved towards in some of the higher-volume grocery outlets,” Tovar said.

The executive said the ability for Express kiosks to easily upgrade and offer digital content from streaming to flash drives and SD cards was a third motivating factor.

“Nobody knows how quickly we’re going to cycle into the next version of this technology with digital streaming and other programs in development,” Tovar said. “What we liked about the Express was the plug-in capacity to effectively adapt new technology as soon as it comes online.”

He said forward concerns included a consumer’s ability to download a movie rental in less than two minutes on portable media devices — an option Tovar said Redbox does not offer.

Meanwhile, Tovar said that arguably the most important degree of separation from third-party kiosk vendors was NCR’s flexibility to mold an agreement benefiting the retailer.

“One of the points early on in the Redbox conversation that was a bit disappointing was what appeared to be a take-it-or-leave-it type of an attitude,” he said, adding that Redbox representatives reiterated a one-stop program that was going to be serviced one way with little wiggle room.

Tovar said another selling point was the due diligence taken by Express management to understand the myriad local business codes required to operate self-serve vending, facilitate handicap access and such.

“Express made sure to meet all of the requirements, not only from a legal perspective, but from Chevron’s aesthetic concerns,” he said.

The executive said Universal in the fourth quarter “pretty feverishly” attempted to put together a rental kiosk platform with big box retailers.

“I got a real hard push from them last September/October with lots of promises and state-of-the-art kiosks, but really nothing much developed there,” Tovar said.

In 2008, Sony Entertainment and Universal partnered in the United Kingdom to roll out the “PoP Instant Entertainment 24/7,” which offered PS3 games, Blu-ray Disc movies, and digital music and movie distribution.

Separately, Tovar said Redbox is running into challenges in some states where the kiosks are not in compliance with local ordinances and codes.

Several cities in Southern California restrict the placement of outside vending due to aesthetic, safety and criminal concerns. In Newport Beach, Calif., for example, outside vending machines are prohibited, according to Tovar. He appreciated that NCR had determined before the first Express kiosk was placed what restrictions — if any — existed in a region.

The executive said possible legal ramifications from Dish’s attempt to restrict the use of the Blockbuster name on Express kiosks going forward were outlined in detail with NCR’s assurance that it has the legal footing to use the name.

“We were hearing rumors about that before the press releases came out on that issue and NCR has provided all of its customers with documentation that effectively [reiterates] their belief the issue [is] moot,” Tovar said.

ExtraMile stores previously carried limited disc sellthrough at select franchise locations. Tovar said corporate-owned stores had eyed a self-serve rental business rather than rolling a dump bin filled with discounted titles.

“That’s a lot of inventory to be holding for relatively minimal revenue,” he said. “Anybody that’s done that type of program in the past ... it just isn’t very appealing to customers.”

Tovar said at the higher-volume beach city stores, being able to rent a movie and return it to any Express helps with the business’ mobile customer base. He cited an Express location in Grover Beach, south of Pismo Beach in Central California, which he said continually is overfilled with returns from three other Express locations in town.

Attempts to stock extra Blu-ray titles have been met with little consumer support.

“We thought it was going to be a bigger concern and we pushed NCR pretty dramatically to [up Blu-ray offerings], but as we talked to our customers and store managers about what format customers are looking for, [Blu-ray] has been relatively minimal,” Tovar said, adding that the typical ExtraMile customer may not be inclined to rent in high-definition as much as seek quick entertainment.

Meanwhile, ExtraMile locations in geographical rural areas affected by shuttered video stores have become the surrogate video store.

“Customers love the convenience of vending,” Tovar said.


About the Author: Erik Gruenwedel

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