CARMEL, Calif. -- Automated kiosks for renting DVD movies are popping up in grocery stores, convenience stores, drug stores and fast-food restaurants nationwide. The growth of these self-service machines has taken industry analysts by surprise, said Investor's Business Daily. And their popularity could further weaken traditional video rental chains like Blockbuster.
Companies such as Redbox Automated Retail, TNR Entertainment and DVDPlay are racing to sign deals with supermarkets and other retailers with lots of foot traffic, said the report.
The number of DVD rental kiosks in the United States at the end of 2006 more than tripled from a year earlier to 3,700, said the report, citing Adams Media Research. The number could reach 9,000 by the end of this year.
They're really taking off, Tom Adams, president of Adams Media Research, Carmel, Calif., told the newspaper The real question is: How far do they get?
With 9,000 kiosks, Adams estimates the segment would generate annual sales of about $270 million, which is about 3% of the video rental market. What is not known, the report said, is how many kiosks the market can support.
TNR said a survey it conducted points to potential annual sales of nearly $1 billion for self-service DVD rental kiosks in five years. It forecasts 25,000 or more retail kiosks over the next three years, said Investor's Business Daily.
In the meantime, kiosk companies are battling for retail space. Redbox, owned by a joint venture between McDonald's and Coinstar, has placed machines in McDonald's eateries as well as in Albertsons and other grocery stores owned by SuperValu. TNR, backed by a group of institutional investors, operates The New Release kiosks in Kroger and other grocery chains.
Oakbrook Terrace, Ill.-based Redbox is the leading operator of movie rental kiosks, with machines in about 3,200 locations. It expects to have 4,000 kiosks in place by the end of June. Coinstar, known for its coin-counting machines, has set a goal of installing 10,000 Redbox machines in three to five years.
We want to get as many locations as close to you as possible in places where you normally go, Redbox CEO Gregg Kaplan told the paper.
The company ideally wants people to pass four or five Redbox machines between home and work, he said. Redbox lets customers return DVDs to any of its machines.
Houston-based TNR is the No. 2 player. It operates DVD rental kiosks in more than 1,600 locations. DVDPlay, Campbell, Calif., has 1,200 kiosks in place nationwide.
All three firms use credit-card-enabled kiosks. Redbox and TNR charge $1 a day, while DVDPlay charges $1.49 for the first night and 99 cents for each extra night.
While many were focused on digital delivery of movies over the Internet as the next big thing, they missed the growth of DVD rentals by vending machine. Practically no one saw this coming, Brad Hackley, vice president of business development for the home video group at industry tracker Rentrak, told the paper. The kiosks came out of nowhere.
Movie Gallery, the nation's No. 2 traditional video rental store chain, has taken notice. It has been testing 74 Hollywood Video-branded kiosks and plans to add 200 more this year, the report said.
No. 1 movie rental company Blockbuster is focused on building a subscription-based rental business. Blockbuster and Movie Gallery have been hit hard by rival entertainment options, including cable video on demand, digital video recorders and online DVD rental leader Netflix. Blockbuster has closed 600 U.S. stores, or 13% of its outlets, in just two years. Movie Gallery has closed 184 stores, or 4% of its total, in the last year.
The growth of DVD kiosks could force more closings, analysts said.
Convenience and lower prices are the strengths of the DVD kiosk business, Investor's Business Daily; its biggest weakness is limited copies of hit movies.
Redbox is trying to lessen that problem with machines that hold more DVDs, Kaplan said. Current Redbox machines hold 500 DVDs. For hit titles, it has 10 to 30 copies each. Like everybody else in the DVD rental business, we can't necessarily get everybody's demands met for the top title after it just comes out on a Friday or Saturday night at 8:00, he said.
Redbox also lets users go online and see the inventory of nearby machines and even reserve a movie. TNR plans to offer online DVD reservations soon, as well.
Adams Media Research predicts that online DVD services will double to $3.4 billion in 2011. The total rental industry will rise only 1% to $8.5 billion in 2011, Adams said.
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