December 14, 2009

NCR’s DVDPlay Buy Sets Up Battle, But Is Fight Already Over?

Continuing thread on WSJ on how realistic it is for NCR to operate DVD kiosks in a market run by Hollywood more interested in on-demand and web offerings.

NCR’s DVDPlay Buy Sets Up Battle, But Is Fight Already Over? - Venture Capital Dispatch - WSJ

By Scott Austin

“Ladies and gentlemen, in the red corner, out of Bellevue, Wash….You know this company for its coin counting, but it also operates more than 22,000 Redbox DVD rental machines across the nation. Here to defend its title in DVD dispensing, please welcome….Coinstar!

And in the blue corner, our challenger, hailing from the suburbs of Atlanta….A virtual unknown to consumers, you may have encountered one of its nearly 3,800 blue Blockbuster Express kiosks. This company grew up as National Cash Register, let’s here it for NCR!”

Okay, so this little rumble may not be as exciting as we’ve made it out to be. But after NCR acquired 1,300 DVD machines through the acquisition of venture-backed start-up DVDPlay, it’s clear Coinstar and NCR will be slugging it out toe-to-toe for the right to rent DVDs for $1 a night in supermarkets and convenience stores.

“Redbox (Coinstar) has taken a substantial lead,” said Brian Jacobs, a general partner at DVDPlay investor Emergence Capital Partners. “NCR is determined to make it a good two-party race. They’re consolidating some of the other players and DVDPlay is key to that plan.”

NCR’s kiosks hold more than 900 DVD titles and are also digital-download-ready. In time, consumers will be able to download movies from the kiosks to portable memory cards.

But Martin Peers, the deputy editor of The Wall Street Journal’s Heard on The Street column, says NCR’s push to fully operate the DVD kiosks - rather than its traditional role of selling and servicing them - could flop. (Read Peers’ column here.)

“NCR has to master not only a different business model but also an industry in the midst of turmoil,” Peers writes in his column. “Continued growth of the kiosk business is uncertain. Several Hollywood studios have been holding back new-release movies from discount kiosk operators, including NCR, upset about their low pricing. While operators can find alternative supplies, they can’t necessarily offer a new DVD immediately. ”

Making things more difficult for NCR, Peer writes, Hollywood is de-emphasizing DVDs, putting more effort into video-on-demand and Web offerings.

Perhaps that’s was a motivational factor in DVDPlay’s venture backers decision to sell out. Terms of the acquisition weren’t released, but we do know that the company’s ambitions were large early this year. The company told VentureWire in June 2008 that it was in active discussions to raise at least $100 million by the end of the fourth quarter. That round never materialized. DVDPlay’s investors - Emergence, El Dorado Ventures, Palo Alto Venture Partners and Vanguard Ventures - put $23 million into the company in a recapitalization round in 2006, with Vanguard investing a few million dollars more over the next few years, according to VentureWire records.

-With Ty McMahan

Posted by staff at December 14, 2009 12:07 PM