DVD Play Fast Forwards Into Arizona
DVD Play is the oldest of the DVD kiosk providers, but also one of the smallest. While the company doesn’t have nearly as many kiosks as Redbox or TNR Entertainment, they do have an important agreement with Safeway to provide DVD rental machines to their stores. According to their website, the company currently has approximately 170 machines, mostly at Safeway locations. All but one of these machines are located in California.
DVD Play’s system is set up very much like the other DVD kiosk players, except they use smaller machines and charge more for their rentals. Their machines only hold 500 discs and they typically offer between 25 – 50 movie choices at any given time. Recently, I asked the Safeway manager near my house about how popular the machines were and he estimates that they rent about 20 DVDs per day from his location. Because the DVDs are $1.50 for the rental and $1.00 for each day after, it means that they need to rent less to be profitable. If DVD Play demonstrates success at these price points, it will be a good test case in how elastic DVD rentals are, once you increase the price over the $1 per night.
One thing that was clear from my conversation with the Safeway manager was that he was really happy to have the machines in his store, regardless of the number of rentals that they achieve. He felt like it added to customer satisfaction and that it gave the store something that they haven’t been able to offer before. In a news article from the Payson Roundup, he’s clearly not the only manager who feels this way. In the article they reveal that DVD Play has started their expansion outside of California and is now rolling out kiosks in Northern Arizona and they also discuss some of the less tangible benefits that Safeway is seeing as a result of this rollout.
“We don’t own or service the kiosk,” said Dan Dillon, Safeway store manager. “We have a contract with the company that does own it, but we’re glad to have it. This is just one more convenience for our customers. People can pick up their prescription, grab some flowers, get a coffee at Starbucks, and then a movie — all in the same ten minutes.”
When looking at the DVD kiosk market, there are really two different customers that need to be served. There is the consumer, who ultimately rents the DVD, but then there is also the retailer who is providing the floor space for the machines. In watching the growth of this industry it’s become clear that retailers like these machines even more then the customers do. Renting DVDs can be a real pain for a grocery store. It takes staff, inventory systems and precious floor space. On the other hand, putting a DVD kiosk near the exit of a store barely takes up any floor space, needs little servicing and has it’s own automated inventory system built in.
Recently, DVD Play hired Dennis Lucas as an Executive Vice President. Lucas was a brillant acquistion for the company and previously had spent most of his career working his way up the corporate ladder of the Albertson’s organization. Just like Netflix depends upon the postal system to act as a distribution partner, the kiosk companies use grocery stores to act as theirs. With Lucas’ extensive background in the grocery industry, he brings skills that will prove invaluable in how DVD Play is able to better serve their grocery partners and demonstrate these less tangible benefits. I see hiring Lucas as being akin to when Netflix hired the former postmaster general to act as their liaison to the post office. While it’s still early for Lucas at the company, I have high expectations for what he can bring to the operational side of DVD Play’s business, as well as to the negotiation table.
DVD Play’s expansion into Arizona makes a lot of sense from a geographical standpoint and could represent a real turning point for the company. DVD Play was founded in 1999 and while they’ve seen slow but steady growth, it’s been anything but explosive. While the company may have gotten off to a slow start, more recently things have been progressing quite nicely for them. At the end of 2004, things looked pretty bleak, but in 2005 the company saw a 200% growth increase and by the end of 05′ they had rented over 4 million DVDs. In 2006, growth has continued to accelerate and they added another 1 million DVDs to this total in the first six months of this year alone. This works out to be an average of approximately 32 DVDs rented a day from their machines.
With the pickup in volume, DVD Play conducted a second round of VC financing and raised another $20 million to help fund further expansion. This brought the total capital that they company has raised to $40 million.
The company plans to use this capital to expand into 1,000 locations by the end of 2007 and has previously said that they would target California, Texas and Florida as ideal locations for this growth.
While DVD Play may have gotten off to a slow start, their recent success and their expansion into Arizona is another clear signal that the DVD kiosk industry is strong, healthy and growing. While I don’t fully understand why it has taken consumers so long to embrace this technology, it’s clear that consumer habits are changing and that more and more businesses and people are becoming comfortable with using kiosks. As video stores continue to come under pressure from a variety of competition, the DVD kiosk will serve an important role in capturing customers who still want instant gratification, at a fraction of the cost of operating a full scale retail store.
Posted on December 16th, 2006 by Davis
Filed under: DVDs, Disclosure - I own stock in co. mentioned, Kiosks, Netflix, Technology