DVD kiosks steal the show as consumers skip rental stores

Kiosks are becoming a more important venue for video rentals. Attracted by the convenience and value pricing, more consumers are opting to rent from the vending machine-type kiosks. Experts said there’s plenty of upside to the business for the drug channel.

“We’re still in the early stages of this business,” said Eric Handler, a media and entertainment analyst for MKM Partners, a New York-based institutional equity trading and research firm. “Penetration in supermarkets and drug stores is still relatively low, so there are a lot of areas for kiosks to expand.”

Handler said kiosks are poised to become a more significant part of the rental business because they offer a low-cost alternative. “Downloads continue to build momentum, but they are still $4 or $5 a pop, and kiosk rentals are $1 to $2 a day.”

A recent study by Market Force Information revealed that more than 40% of consumers said they would rent a movie at a kiosk, compared with 36% who said they would do so at a video store. The study revealed that purchasing movies from cable subscriptions falls behind kiosks in frequency—15% of consumers said they watch movies rented through cable providers.

The report also said that more consumers who said they planned to rent more DVDs or Blu-Ray discs said they would do so at kiosks rather than through subscription-based rental services, through their cable TV subscriptions or at video stores.

“Kiosk rentals should account for about 30% of all rentals in 2010,” said Jeff Dudash, a spokesman for NCR. NCR has become a big player in the category with its Blockbuster-branded kiosks. The company had no kiosks in stores in 2009; now more than 4,000 locations in the United States contain a Blockbuster rental unit.

Dudash said kiosks continue to grab share from other rental channels—a trend he said is driven by the convenience aspect the kiosks offer consumers and the low $1-a-day rental price. “Convenience and cost are really driving the trend. There are a lot of ways to get a movie, but kiosks are convenient because they are located in places the consumer is already visiting,” Dudash said. “Consumers can pick up a DVD near work and return it near home, or pick it up and have the kids watch it in the car and return it when they get to their destination. It offers a lot of flexibility.”

Retailers like the kiosks because they guarantee a return trip to the store. Coupons and joint promotions also can be tailored to individual retailers.

One issue with the kiosks has been timing on new releases. Some studios want to create a delay on when new releases could become available to kiosks because of their low prices. “The question still remains whether there will be a window where kiosks won’t have new releases yet,” Handler said. Value-conscious consumers may not mind the wait.

The units can hold hundreds of DVDs. Volume is based on usage, and NCR tailors the selection in its Blockbuster units based on market preferences. “Our units hold as many as 950 DVDs, while most competitors hold about 500,” Dudash said. “New releases have to be predominant, but older releases have a place. When the new Harry Potter movie comes out, we’ll offer older Harry Potter rentals as well.”

Since technology is changing so rapidly, video rental companies are keeping their eye on the future. “We’re thinking about the future of entertainment, and we don’t want our units to become dinosaurs as people shift to digital download,” Dudash said. While he thinks that shift will take five to six years, NCR is working to enable its units to allow consumers to download movies on portable SD cards.

“Our kiosks will easily evolve to the medium of choice,” he said. The company already has some technical trials in the Dallas; Portland, Ore.; and Seattle markets. “We want to have a solution that makes sense for consumers, so we’ll be rolling out our testing more aggressively this year.”

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