June 04, 2004

DVD Rentals

Nice article on DVD Rentals from Mercury.

Posted on Fri, Jun. 04, 2004
Butch Oustalet Lincoln Mercury

Los Gatos firms revolutionizing movie rentals


By Mike Langberg

Mercury News

Blockbuster's mighty grip on home movie rental is loosening in the face of new technology, much of which is coming from University Avenue in Los Gatos.

On University near Lark Avenue is the headquarters of Netflix, which has signed up 2 million subscribers to rent DVDs from the company's Web site for delivery by mail.

A mile south on University are the offices of DVDPlay, which has developed an Internet-connected DVD rental kiosk. It works something like an automated teller machine, dispensing movies instead of money. It's small enough and inexpensive enough -- at $10,000 to $17,000 a machine -- to fit into all kinds of locations Blockbuster could never reach.

While Netflix has become a household name, DVDPlay had been quietly struggling along for several years with only a small number of pilot installations around the country.

That changed in a big way May 24 when McDonald's announced it would put DVDPlay kiosks in all 104 of its restaurants in the Denver area.

The phones at DVDPlay headquarters have since been ringing off the hook. In a weird coincidence, the offices were previously occupied by Netflix, although the companies otherwise have no connection.

Netflix and DVDPlay, as I see it, are taking advantage of two things Blockbuster and other traditional video rental operators have been slow to recognize:

First, DVDs are much smaller and more durable than VHS cassettes. That makes it economical to deliver rental DVDs by mail or stock them on a big jukebox-type wheel inside a kiosk. The fact that DVDs provide superior picture and sound quality to VHS tapes is just icing on the cake.

Second, the Internet brings huge efficiencies to businesses that deal with large numbers of consumers. Netflix could never hire enough phone operators to take rental orders from its members; instead, the members manage their own request lists thorough the Web. DVDPlay's Internet-connected kiosks provide the distributors or retailers who own them with instant updates on which titles are renting, verification of credit-card numbers and reports on kiosks that are malfunctioning, and allows on-the-fly pricing changes.

Blockbuster, the national colossus of movie rental, is feeling the heat. On May 25, the Dallas-based chain announced unlimited rentals for a fixed monthly fee -- an offering very similar to Netflix, except that customers would pick up and return movies to Blockbuster stores rather than using the mail.

The monthly fee, which Netflix has used since its launch in 1999, means there are no late charges. That undermines one of Blockbuster's biggest sources of revenue: forgetful customers who regularly get dinged for keeping movies too long.

It's too soon to say whether DVDPlay will survive in this tough market, but the company's current offering is very attractive.

Two DVDPlay kiosks are installed in the South Bay, each storing up to 100 DVDs, at Zanotto's Family Markets on Naglee Avenue at Bascom Avenue in San Jose and at Victor Square in Scotts Valley.

I stopped by the Zanotto's on Naglee earlier this week and found the bright red kiosk easy and quick to use. Tapping the touch-sensitive screen with my finger, I flipped through the kiosk's selection -- mostly new releases -- and picked ``Kill Bill, Volume 1,'' a gory Quentin Tarantino movie I'd been curious about.

I swiped my Visa card through a reader on the machine and the DVD popped out a few seconds later in a plastic case. The rental fee for 24 hours: 99 cents, or $1.08 with tax.

I watched the movie that night, found it gross and silly in about equal parts, and returned it the next day. All I had to do was stick the case back in the same slot where I'd received it the day before.

Here's the kicker, an important marketing angle for DVDPlay: I returned the movie at lunch time. So I stopped at Zanotto's deli counter to buy a turkey-and-brie sandwich and a bottle of lemonade for $5.49. That was a nice bonus for Zanotto's, because I would never have been in the store if I weren't returning the DVD.

DVDPlay does have some competition, including MovieMat of Israel and Mediabank of Italy. There's a Mediabank machine running on the side of the Mac-Pro computer store at 2360 S. Bascom Ave. in Campbell.

But DVDPlay looks to have an edge in ease of use. Its kiosks are also smaller, making it easier to install them in tight spaces. A new model, just entering production, will hold 300 DVDs.

And DVD rental could just be the start. Jens Horstmann, DVDPlay's chief executive officer, told me the company is looking for other products to sell from its kiosks, everything from computer games to cosmetics. Future versions could also fetch music and movies on demand from the Internet, burning them to disc on the spot -- so you could buy or rent anything you want at any time. That's when Blockbuster will really have to start worrying.

MercuryNews.com | 06/04/2004 | Los Gatos firms revolutionizing movie rentals

Posted by Craig at June 4, 2004 07:18 PM