As a former commercial banker with 14 years experience, Brent Hall believes he can spot a good investment. That's why he recently purchased three self-service DVD-rental kiosks and installed them inside grocery stores in the Chattanooga, Tenn., area.
During the coming year, Hall and his partners at Paradigm Media Resource Group plan to deploy about 40 movie rental machines with "Roxi" logos in the southeastern United States. They're aiming for grocery and convenience stores in underserved urban and suburban areas, along with locations in rural small towns.
Hall and Paradigm have their work cut out for them. Coinstar Inc. has nearly 27,000 of its redbox DVD-rental kiosks in operation, while NCR Corp. and its partner Blockbuster are now running more than 6,500 such devices. Despite this, several firms have decided to take on these two giants by competing on convenience for both consumers and merchants, adding some high-tech touches, and applying the nimbleness that comes from being small and local.
For starters, Hall thinks there are plenty of profitable places to run the Roxi machines.
"Some of the markets we're looking at aren't typically considered big enough by the major players, but they're high-traffic locations that offer convenience for customers," Hall said. "Some of the places that want to host our machines say they didn't want to be on an extensive waiting list for a big company like redbox. That's an advantage for us: We can put our kiosks in place very quickly so that host clients can start earning profits from the rentals."
To deploy the rental machines, Hall's company is partnering with iMOZI, a kiosk designer and technology provider that has worked with dozens of new operators to launch enterprise-scale DVD kiosk networks in the United States, Canada and other countries.
"Working with an original equipment manufacturer like iMOZI allows independent operators to fully customize and improve on the functionalities of their DVD kiosks," said Soheil Samimi, president of iMOZI, which has offices in Chicago and Toronto.
Other independent kiosk providers such as DVD Now of Vancouver, B.C., ELO Media's DVMatic, Global Axcess Corp., and Kiosk Concepts are helping budding movie moguls reach for stardom.
Jacksonville, Fla.-based Global, which owns, operates or manages more than 4,500 ATMs and kiosks in 43 states, is installing about 325 DVD kiosks this summer in a major grocery chain, according to its second quarter financial statement.
Although Global reported that its DVD program lost $418,000 in the first half of the year, the company predicts positive growth in the segment.
"DVD kiosks are expected to generate higher revenue and gross profit when compared to our ATM business, and we remain excited about the potential for us with DVDs," George McQuain, CEO of Global, said in the report.
Although smaller companies don't have agreements with major movie studios like Coinstar's multiyear deal with Paramount Home Entertainment Inc., they can still offer newly-released DVDs by purchasing them from third-party vendors.
With investors of all sizes entering the market, experts predict the DVD kiosk rental market will continue to grow this year. Rentals at DVD movie kiosks are on track to make up nearly 30 percent of the U.S. video rental market in 2010, according to a recent report from the NPD Group, a global provider of consumer and retail market research information.
There is clearly a large market, with redbox generating revenues of $344 million in the first half of 2010, and NCR adding 100 to 200 kiosks a week, most under the BLOCKBUSTER Express name, with a goal of 10,000 in operation by year end.
Paradigm's Hall doesn't seem intimidated by competition from the big dogs.
"We realize the industry is dominated by two players right now, but many consumers will agree that competition is healthy," he said. "We offer a great product at a great price with reliable customer service. Plus, we're counting on people who prefer to shop local and buy from smaller companies and local owners instead of major corporations."
