Article

DVD-rental kiosks get ready for their close-up

Is it 'Blockbuster beware' as new machines start to fling flicks at the masses?

April 14, 2004

The DVD rental market sports some heavyweights. Mighty Blockbuster Video is fisting it out with the online Netflix service. And Wal-Mart is also online, battling Blockbuster, Netflix and brick-and-mortar competitor Hollywood Video.

So how could there be any room left for kiosk solutions companies to mix it up with the big boys?

Just ask DVD Play Inc. of Los Gatos, Calif., and FlickStation Media Inc. of Atlanta. They're among a small number of kiosk companies that have carved out a little niche in this more than $4.5-billion-a-year business, a volume of DVD rentals eclipsing that of VHS videos. The small guys are hanging their hopes for success on superior customer service and convenience.

Feisty young upstart FlickStation came into the national limelight last month when it inked a deal with EarthLink to install DVD rental kiosks at the Atlanta and Pasadena, Calif., offices of the Internet Service Provider. EarthLink presents the FlickStation as an employee perk.

"Providing our employees with the convenience of renting DVDs at the office is an excellent way to bring an element of fun to the workplace," said Stacie Hagan, director of employee communications for EarthLink.

DVD Play has been around since 1999, when it rolled out what company officials claim was the world's first "automated entertainment machines" to rent DVDs and games. Growth has been steady but not explosive.

The company has about 100 units installed nationwide at such sites as apartment complexes and office buildings. Currently, a pilot program is underway with Albertsons supermarkets in Utah, said Dee Cravens, executive vice president and chief marketing officer. He predicts the number of units will doubled within the next 30 to 45 days.

Feisty upstarts not intimidated by the A-listers

FlickStation founder and CEO Dean Gebert says he has a healthy respect for Blockbuster and Netflix but isn't cowed by them.

"We're not going to get intimidated by anybody," Gebert said. "We definitely have all of our competitors on the radar, but all we can do is keep servicing our customers well."

"With us there are no extra trips to the store, waiting on the mail to deliver your DVD or putting up with a surly salesperson," he added.

His kiosks carry up to 2,100 DVDs, with the largest model about the size of a soft-drink machine. The company strongly emphasizes new releases. Customers use a screen to locate their selection and swipe a credit card, and a robotics mechanism drops the DVD into a pickup slot. The machine also has a return drop-off slot.

FlickStation's machine may revolutionize--or least evolve--the movie-rental business.

FlickStation also has rental kiosks installed at Peach Tree Center and Central Parkway, two major office complexes in Atlanta. Promising market niches include health clubs and coffee shops.

"We plan to have 30 more machines installed within the next six months and go national by the second quarter," Gebert said.

DVD Play has machines in seven states, including a large clustering in New York City, where you can find one at Trump Towers and other major office complexes. The company also is also targeting convenience-food store sites

"Our plan is to bring DVDs to where our customers live, work, play and shop," Cravens said. "Our machines are the ultimate loyalty kiosk. It gives customers a reason to come back. And for companies like Albertsons, that means customers will end up buying other items when they return a movie."

Thumbs not up yet for DVD machines

The jury is still out on the viability of companies like DVD Play, FlickStation and like-minded kiosk deployers, said consultant Francie Mendelsohn, president of Summit Research Associates Inc.

"They have some real potential, though there just aren't very many of them out there yet," Mendelsohn said. She said Netflix, with its emphasis on quick turnaround of DVD rental orders in the mail, will give such companies a run for their money.But Gebert insists that FlickStation has found a definitive niche, one that clearly caters to instant gratification.

"What if your spouse calls and asks you to bring home a DVD of a new release?" he asked. "You want to be able to get it home for viewing that night."

He said getting hold of the particular movie is much more convenient if there's a rental machine in an office building or health club, giving patrons an alternative to driving to a video-rental store or ordering it online.

Both DVD Play and FlickStation let local market forces determine the rental charges. In Atlanta, for instance, the prevailing price is $4.49 for a four-day rental.

By contrast, Netflix allows unlimited rentals-up to three movies at a time-for $19.95 a month. DVDs are delivered to customers by first-class mail from shipping centers located throughout the United States. This year, publicly traded Netflix expects to top out at approximately $500 million in revenues with more than 2.4 million subscribers.

Financial information was unavailable for the privately held DVD Play and FlickStation.

Gebert has big plans for FlickStation.

"We're going to launch a web-based service where customers can rate movies and read reviews and qualify for `Flick Points,' our version of frequent-flyer miles," he said.

"We don't plan on making enough money to buy a small island," he said. "We just want to help our customers to have fun."