September 12, 2008

DVD Kiosks - NCR, acquisitions and Blu-Ray

More news from NCR and how they figure 11,000 machines over the next 2 years is realistic. First they sign on big "blockbuster" client, then they take minority stakes in TNR and E-Play to get locations, and finally they bank on the fact that Blu-Ray is actually a good thing since the heavier digital weight (1.5Gb versus 4GB) works to their delivery advantage. Remains to be seen though if Netflix with it 3-prong strategy (delivery, streaming and Xbox/MS) ultimately prevails..

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NCR to build DVD kiosk business
ATM giant will make more than 11,000 machines by 2010
By Danny King -- Video Business, 9/5/2008

SEPT. 5 | Mel Walter might work for a company that has been in business for 124 years, but he’s still a big fan of spontaneity, especially when it comes to renting movies.

“Seventy percent of people who enter movie-rental stores had no idea they were going there one hour before they arrived,” said Walter, VP of corporate development at NCR, the world’s largest automated-teller-machine maker. “The options you have at home are minute compared to what you have in a 10,000-square-foot store or at kiosks with 4,000 DVDs connected to a server attached to a long-tail catalog.”

Founded in 1884 as the National Cash Register Co., the one-time AT&T unit is investing heavily in a relatively nascent movie-kiosk industry. Each year, the company makes more than 100,000 self-service kiosks, such as ATMs and airplane-ticket-dispensing machines.

In the next 18 months or so, it will put more than 11,000 DVD kiosks into production, and NCR has taken minority ownership positions in two kiosk companies.

“We think a fundamental shift is occurring in the way consumers are obtaining entertainment media,” said Walter, who wouldn’t disclose how much NCR is investing in the industry. “The shift from traditional store distribution to kiosks is a dramatic growth opportunity.”

NCR, which boosted its second-quarter sales 13% from a year earlier to $1.33 billion, looks to gain customers in a kiosk market that’s expected to pull sales from traditional movie-rental stores during the next few years. U.S. consumers will spend $800 million at kiosks by 2010, triple the amount spent last year, according to Convergence Consulting Group. Meanwhile, store rental revenue, estimated at $5.4 billion last year, will fall to $3.1 billion by 2010, according to Convergence.

Last month, NCR announced plans to build kiosks for both Blockbuster and The New Release/Moviecube. Blockbuster, the largest U.S. movie-rental chain, said NCR will make as many as 10,000 Blockbuster-branded installed machines by early 2010. The machines will let customers rent DVDs and eventually might let consumers buy discs and make digital downloads of certain titles, the companies said.

Meanwhile, NCR acquired a minority stake in TNR, for terms that weren’t disclosed, and will make as many as 1,400 new kiosks by 2010 for the No. 2 movie-rental kiosk company behind Redbox.

“We view ourselves as entertainment merchants, not kiosk operators,” said Tim Belton, CEO of TNR. “NCR has made a commitment to this space.”

In July, NCR acquired a minority stake in closely held kiosk maker E-Play in an agreement that will add several thousand self-service DVD-trading machines in GameStop, Dollar Tree and other U.S. retailers within the next few years.

Such an investment isn’t without its risks. U.S. consumer spending on DVDs for the first half of the year was little changed from a year earlier, reflecting the economic downturn and possibly the lingering effects of the high-definition disc format war, which was won by Sony-led Blu-ray Disc in February.

Such a sales plateau might have affected efforts to go public by U.S. kiosk leader Redbox, which in February announced agreements with Walgreens and Wal-Mart that will bring Redbox’s kiosk total to more than 11,000 by the end of next year. Redbox, which is majority owned by coin-exchange-machine operator Coinstar, in May announced its intention to file a prospectus for an initial public offering by the end of June. Those plans were delayed indefinitely by what some movie-rental analysts say were poor stock-market conditions.

Additionally, the growth of direct-to-home delivery, in the form of cable video-on-demand, video streaming or downloads, is seen by some as a long-term threat to DVD as the primary mechanism for viewing movies from home.

Still, Walter insists that the prospect of streaming replacing DVDs as the primary method of home entertainment delivery is a long way off.

“Video-on-demand has been around since 1991 and has still has not approached 10% of the media market in North America,” Walter said. “As we make the transition to high-def Blu-ray, the size of the files are going from a couple gigabytes to about 30GB, so packaged media has a huge advantage in portability.”


Netflix Bets on Technology To Stream Films via Web
September 10, 2008
Netflix Inc. doesn't believe the online DVD-rental market will dry up anytime soon. But by the time discs do fade away, the company wants to make sure customers are already accustomed to using its service to download movies and TV shows from the Web.

Netflix, led by Chief Executive Reed Hastings, is betting that its unlimited rental proposition -- so successful in the DVD space -- will work just as well in the streaming era.

For a basic monthly subscription rate starting at $4.99, Netflix customers go online to rent DVDs, which are delivered via first-class mail, complete with postage-paid return envelopes. Almost 95% of Netflix subscribers live in areas that can receive discs in one business day, and the company's library carries more than 100,000 titles.

Since January 2007, Netflix has also offered downloads. At unlimited plans starting at $8.99 a month, customers can rent at least one DVD at a time, and stream as many movies as they like.

"People continue to gravitate toward the Web because of its convenience, so we see good growth ahead in our business on the DVD side," said Netflix spokesman Steve Swasey. "However, we know the future belongs to instant watching, to streaming to your TV. So we're forming partnerships with great technology embed the Netflix software into devices that deliver streaming content to the TV."

Most recently, Netflix and LG Electronics Inc. teamed up on a Blu-ray high-definition player, available in the fall for less than $500, which will let customers download movies and TV programs from to their television sets. Eventually, the player will also be able to stream non-Netflix content.

In July, Netflix and Microsoft Corp. said they would stream movies and TV shows to subscribers of Xbox Live, a Web-based service for users of Microsoft's Xbox 360 videogame system, starting this fall. More than 12,000 movies and TV episodes will be available when Netflix launches on Xbox Live. The service will be free to Xbox Live Gold members who are also Netflix subscribers, the companies said.

With Roku Inc., Netflix has developed another standalone player, a less expensive one, without Blu-ray capability. The device, unveiled in May, sells for $99.99. Like the Xbox deal, Netflix offers 12,000 movies and TV episodes from its library, and will ultimately be able to handle non-Netflix streams.

Why so many players? "Our goal is to be ubiquitous with our partners," Mr. Swasey said. "We want to have movies and TV shows delivered to our customers in whatever form they want."

Analyst Rich Ingrassia of Roth Capital Partners has a few long-term concerns about Netflix. One is competition from download services offered by Apple Inc.'s AppleTV as well as by Inc. and TiVo Inc., which have collaborated on the Amazon Unbox/TiVo option.

Mr. Ingrassia isn't sure that consumers will be able to distinguish between Netflix's offering and those of these competitors. This is especially true, he says, when considering the fact that a growing number of Netflix subscribers seem to be opting for its lowest-priced plans, at $4.99, $8.99 or $13.99 a month, rather than the high-end plans at $35.99, $41.99 or $47.99. At $47.99 per month, users can have eight DVDs out at a time with unlimited streaming privileges.

Netflix, based in Los Gatos, Calif., believes it has distinguished itself from other download services, but admits that it will take time for the message to sink in completely.

"We think there's definitely a differentiation, and that is that Netflix is a service with unlimited rentals and unlimited streaming. The others are pay-per-view," Mr. Swasey said.

"The people that are really dialed in to streaming get the difference," said Mr. Swasey. "They tend to be the early adopters, people who are on blogs and chats, talking about the new technology and all the whiz-bang stuff. The general public probably doesn't get that just yet, because this is a very nascent technology. Mainstream consumers are still happy with DVDs, and probably will be for five to 10 years."

Perhaps a bigger threat to Netflix, in Mr. Ingrassia's view, are DVD rental kiosks from Redbox, owned by Coinstar Inc. and McDonald's Corp. In just a few years, Redbox has installed more than 3,000 kiosks across the U.S., at Wal-Mart Stores Inc. outlets, supermarkets and other places with significant foot traffic. The company charges $1 per day for rentals.

"We believe the Redbox [$1] rental model has particular appeal among today's new subscriber pipeline," Mr. Ingrassia told clients in a recent note. "As the kiosks proliferate and awareness grows, it is reasonable to believe Redbox will disrupt Netflix's new subscriber pipeline."

Netflix isn't terribly concerned about the kiosks. "We see kiosks as competing with video stores," Mr. Swasey said. "They're very new-release centric -- that's all they offer -- and that's what the stores offer. You're still going to a destination to pick it up, you have to return it, and you pay by the day. So we think they're going to take more business from the stores than they do from online."

Netflix caters to consumers who want older catalog titles or specialty items, Mr. Swasey said. "Netflix ships more than 70% catalog. On a typical day we ship 46,000 unique titles." Meanwhile, the service does have the newer DVD releases that a more casual watcher might desire, he said.

Having invented the online DVD-rental business, Netflix seems well positioned to have a leading role in its evolution into a digital streaming enterprise.

Posted by staff at September 12, 2008 07:11 AM