DVD Rental Kiosks Take Aim at Traditional Video Stores

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Industry analysts confirm that video rental stores are fading out of the picture due to the increasing pressure from subscription services such as Netflix (NFLX) and the growing popularity of DVD rental kiosks.

Industry analysts confirm that video rental stores are fading out of the picture due to the increasing pressure from subscription services such as Netflix (NFLX) and the growing popularity of DVD rental kiosks.

Traditional video stores are hindered by a business model that has not changed significantly in the last 20 years. Video stores generate 90% of their profit from new releases yet the vast majority of their square footage is taken up by a catalog of older, under-producing titles. DVD rental kiosks eliminate the majority of the real-estate and labor costs associated with operating a traditional video store and focus almost entirely on heavily rented new releases.

2005 was a banner year for DVD kiosk operator DVDPlay (http://www.dvdplay.com) as they experienced an increase in sales of 200% over the previous year. And, with an injection of $20 million in venture funding from El Dorado Ventures, they are not likely to slow down any time soon. In June 2006, just 6 months after renting their 4 millionth DVD, DVDPlay hit the 5 million movie mark.

Redbox (http://www.redbox.com), a DVD kiosk operator backed by both McDonald’s Corporation (MCD) and vending giant Coinstar (CSTR), plans to be in 2,000 locations by year’s end, and 5,000 locations by 2007. Coinstar has made DVD rental kiosks a key element of their vending platform, and specifically their effort to increase revenues in under-producing sections of stores. Coinstar’s literature ranks DVD rental kiosks among the most profitable of all their offerings, capable of generating more revenue than coin counting machines, soda machines, and ATMs combined.

One company that has a slightly different approach is DVDNow Kiosks Inc. (http://www.dvdnowkiosks.com), a DVD kiosk company that is growing their network of locations through partnerships with local owner operators. Entrepreneurs can purchase a DVDNow rental kiosk, place it in a local business, and generate revenue through the rental and sale of DVD’s. DVDNow’s partnership with local owner operators is a real strength as it allows for machine management on a local level with movie inventory chosen based on actual renting patterns, tracked by proprietary software, rather than ordering the same titles for thousands of locations. Although available nationally, DVDNow is preparing to deploy on a large scale into Texas, Florida, and California, and plans to be in 1,000 locations by the end of 2007.

With 73% of Americans preferring to watch movies at home and almost 90 million U.S homes owning at least one DVD player, there is no doubt that the DVD will remain the most popular medium for movies for many years to come. And, thanks to DVD rental kiosks, renting a movie is going to more convenient than ever before.

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Dave Mallenchuck
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