DVDXpress Launches Subscription Kiosks

Davis Freeberg is excited about $12.99 per month subscription DVD rental kiosks from DVDXpress.

Considering that DVD kiosks cost anywhere between $20,000 - $25,000 to buy, one would need to rent 10 DVDS a day at $2.50 just for their initial investment to pay off in 2.5 years. With a $1 a day kiosk price war currently in place, this isn’t an easy task to achieve and even at some of the heaviest trafficked areas it can take at least a year to get to this level. On the other hand, if DVDExpress gets just 75 - 100 subscribers to adopt the monthly $12.99 pricing, then a kiosk could easily pay itself off after 2.5 years without having to place the machine in a heavy traffic area. Once the machine is paid off, the DVD kiosk essentially becomes a cash cow.

I'm excited because it feels like we (customers) are getting more and more interesting ways to enjoy movies.

Comments

[corey3rd]

Two and a half years? My goodness. That's an eternity in hit and run entertainment.

[gir]

It is an exciting concept. I've been a fan of the RedBox concept since I first heard about it.

Still, I can't help but feel I'm missing something. It sounds too good to be true. Is the limited selection the Achilles heal? Will availability of titles be the downside? Can't put my finger on it, but something tells me I'm not going to get 10 titles a month, month after month, for my $12.95.

[Davis Freeberg]

Mike, I love how you focus on the consumer benefits. With the way my brain works, that was really just an after thought in my mind, but I really think that this is going to be a win for both customers and for the kiosk industry as well. I remember back in the tech heyday we had all of these business that gave away cool free stuff, but it didn't do any good if they went bankrupt, so it makes me excited to see a way for consumers to pay less and for a business to make money doing it.

Gir - It does sound too good to be true, but what makes it work is that DVDXpress doesn't have to pay mailing costs, just inventory, servicing of the kiosk, revenue sharing and the initial investment. If you figure that Netflix has to pay around .78 cents in shipping costs for each DVD that they send you, this means that it costs them close to $8 more per month to give you 10 DVDs then it would for DVDXpress to let you have them. By getting rid of the mailing costs, they can not only cut their prices, but can let also let consumers rent 50 dvds per month if they want without having those transaction costs. Because there is a fixed cost to stock the machine anyway the only real extra transaction cost for the company is the additional DVDs that they have to buy from people keeping their DVDs at home. Whether you keep one DVD for a whole month or 50 the costs will largely be the same.

[Aron]

They save on postage but they have no long tail benefits. The kiosk must be stocked with the most popular recent releases, and the working lifetime of a disk is probably limited. Plus, the non-centralized inventory is much less efficient statistically. It's harder to have just enough copies of a disk but not too many.

Further, the lengthy pay-off time reduces the speed of deployment because of working capital.

Nevertheless, I think it has an excellent niche to fill. I still think they need to focus on saturating a given regional market before any national presence. There are a number of network scale effects such as marketing efficiency, user convenience, and probably maintenance cost. Strong regional statistics would prep a public market capital opportunity.

[type-cast]

Good to know you approve, Aron. I'm sure the investors were worried that their plan might not pass muster with you. They will take the advice, of course, because it was written by you. Some guy with nothing better to do than give out business and financial advice. They probably made their fortune by following the advice of business majors with fancy jargon. "public market capital opportunity." LOL. Is that anything like an IPO, Mr. Wordy?