Article

DVD kiosks multiply despite Netflix growth

NCR and redbox: Streaming no threat to DVD kiosks. Yet.

December 13, 2010

The extinction of DVD kiosks—or at least a considerable retraction of their presence—may be inevitable as more consumers begin streaming movies into their homes over the Internet, but their manufacturers and deployers do not forsee the closing credits rolling any time soon.

In fact, Coinstar's redbox machines and NCR Corp.'s BLOCKBUSTER DVD EXPRESS kiosks are popping up faster than ever. And the newest DVD kiosk company, EntertainmentXpress, recently hired former redbox executive Greg Waring as president and CEO to help it burst into the market. Under Waring's supervision, redbox expanded from 100 retail locations to 4,500, and increased revenue from $3 million to $100 million.

"People have been predicting the demise of physical media for 10 to 20 years, yet it's just as popular as ever," said Jeff Dudash, entertainment spokesman for NCR. "All the data we've seen says consumers gravitate toward DVD kiosks for getting entertainment because it's convenient and affordable. At the end of the day, it's $1 a night to rent a DVD. That's two hours of entertainment for a buck. You can't beat that."

But according to Netflix, you can.

In November, the rental giant that started life with a mail-only delivery model introduced a $7.99 streaming-only subscription plan to its U.S. customers. The plan, which allows members to instantly watch unlimited movies and TV shows streamed from Netflix to TVs and computers, has been so successful that the company says by the end of the current quarter, its 16 million company-wide subscribers will have watched more content streamed over the Internet than on DVDs, and that it will have invested more money to license streaming content than to acquire discs. Last week, for example, Netflix reached a $200 million agreement with The Walt Disney Co. that allows it to stream TV shows from the ABC network, Disney Channel and ABC Family.

Reed Hastings, Netflix co-founder and CEO, said in a recent release that the success of the program demonstrates how consumer preferences for receiving content are changing. Other numbers back him up: Research firm In-Stat projects revenue from video-download and streaming will grow from $2.3 billion to $6.3 billing within five years.

"We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet," Hastings said.

Kiosk model to endure

While streaming may become the dominant business model, the recent growth of rebox and Coinstar is proof consumers aren't yet ready to leave DVDs behind. Coinstar's revenue jumped 42 percent over last year to $380.2 million because of redbox's 54.2 percent expansion, according to an October story on cnnmoney.com

Like redbox, NCR is enjoying a growth spurt. Nearly 10,000 of its BLOCKBUSTER Express kiosks are now deployed, which is more than double the locations in 2009.

Public Media Works Inc., the company that owns EntertainmentXpress, plans to roll out DVD kiosks in restaurants, including Popeye's and Pizza Hut franchises, and will soon install kiosks featuring movies, video games and 3-D ads in 7,000 gas stations.

Even Netflix officials say there is still room in the market for DVD kiosks. "Clearly, the discs will go away just like cassette and VHS tapes, but people are still enjoying them," said Steve Swasey, the vice president of corporate communications at Netflix. "It's a matter of understanding the consumer's mindset and proving to consumers what's easiest for them. Netflix still ships a lot of discs, but (with digital downloads) you just push play, and it's right there. You don't have to drive anywhere."

"The day will come when people get all entertainment from digital downloads, but we've got years," Dudash said. "It is a major concern, though, so we've started making investments."

Those investments include the installation of several digital-download kiosks in airports throughout the country. Travelers can now copy movies and other media to SDM cards and USB memory sticks and play the content on Windows PCs and laptops, netbooks and tablets. They can also load music tracks onto USB storage devices. Coinstar for its part will enter the digital streaming market next year, according to a November story published on retailcustomerexperience.com, but details are not yet available.

Helping the kiosk companies are two formats so hungry for bandwidth that streaming isn't yet a viable option for them. "We believe that the growing interest in high-content delivery forms, such as Blu-ray and 3-D, is creating added interest in physical media," said Chris Goodrich of JSH&A Public Relations, the company that represents redbox.

"Redbox constantly looks for new ways to enhance the customer experience and to further our position as an entertainment destination. We recently rolled out Blu-ray rentals at kiosks nationwide in September, and the company is also now testing video game and television content rentals as a result of that commitment."