Drug rolls into DVD rental picture

For nearly a decade, drug stores have relegated their DVD selection to big, blockbuster titles or older movies priced under $10. But the growing trend toward in-store DVD kiosks is changing that business model and putting drug stores in the video rental business.

Walgreens moved in that direction Feb. 27 when it announced plans to roll out RedBox DVD rental kiosks to more than 2,000 stores by 2009. Walgreens began testing the kiosks that rent DVDs for $1 a day in about 50 stores in Chicago and Houston in 2006 and expanded that test last November to 200 stores in Phoenix and Columbus, Ohio.

“Featuring the latest DVD rentals for $1 per night, Redbox provides consumers with another reason to visit their neighborhood Walgreens location,” said RedBox chief executive officer Gregg Kaplan.

The Walgreens rollout will expand what’s already a significant footprint for RedBox in drug stores and food and drug combo stores. Smith Food & Drug began testing the kiosks in stores last year along with Albertsons’-Savon and Jewel-Osco outlets in the Chicago area. At the end of 2007, RedBox had kiosks in more than 6,000 stores.

Wal-Mart also is joining the move toward kiosk-based DVD rentals. It began testing the kiosks in stores last year, and recently signed a deal to install them in more than 2,700 stores nationwide by the end of 2009.

Rental kiosks have been around for years, but until now, haven’t had much success in drug stores. Duane Reade tested kiosks in about 25 stores near subway stops in New York in 2005, but dropped them after less than a year.

NPD Group analyst Russ Crupnick says the RedBox kiosks are succeeding where others have failed because of an attractive $1 per day rental fee and the fact they’re easy to use.

“I was in a store recently and watched people walk up and use the [RedBox] kiosk,” Crupnick said. “And everybody had no problems at all. You can’t underestimate the importance of a simple user interface.”

While rental kiosks have proven to be a success, the debut of kiosks that can download and burn DVDs is new territory Walgreens plans to venture into this spring when it introduces DVD-burning kiosks in stores.

“We’re planning to launch the kiosks at a few pilot stores sometime in the next few months,” said Walgreens spokeswoman Tiffani Bruce.

The chain plans to work with Sonic Solutions, a firm that released industry-approved Qflix software last fall that allows DVD burning. Walgreens hasn’t discussed how much a typical DVD would cost but said it would take about 15 minutes to burn a movie to a blank disc, allowing customers time to shop and pick up their DVD before they leave the store. DVD rental chain Blockbuster also plans to test the kiosks.

Rubin says the limited success of DVD downloads so far doesn’t bode well for the future of in-store kiosks but says there are some positives. “One good thing is they’ll give people access to thousands of different titles using a small amount of space,” he noted.

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