Vending machines are the new (or are they the interim?) distribution channel for DVD rentals. Market leader Oovie—which was bought by Hoyts in 2009—and market challenger Video Ezy Express are battling for the business of Aussie movie renters.
But are they fighting the wrong fight?
It is clear that the DVD rental market is suffering at the hands of legal online distribution channels—such as iTunes and Netflix (coming to Australia soon … or maybe not)—and illegal online downloads. Blockbuster, the world’s biggest movie rental company, filed for U.S. bankruptcy in 2010 due to the pressure put on it from alternative distribution methods.
So why are Oovie (soon to be renamed as Hoyts Kiosk) and Video Ezy Express playing in the DVD kiosk space?
While these DVD rental vending machines are still relatively new, they are popular. Some of the busiest locations (like the one at Vogue Plaza on Chapel Street, South Yarra) rent in excess of 70 DVDs per day! At $3.50 per rental, that’s nearly $250 per day in revenue. And for a kiosk style business, the overheads a quite low. Rent for a 2m × 2m block of space is significantly less than shops with large floor space. There are no staff wages to pay. And, once you have the system set up, it’s basically self sufficient.
Because of these operational benefits, DVD kiosk’s offer two benefits to consumers: price and convenience. New release movies are priced at $3.50 per night at Oovie, half the price of conventional new release movie rentals. The service is quick and easy, with no membership required. Customers simply swipe their credit card and keep the movie for as long as they desire (keep in mind rentals cost $3.50 per day). Customers can also rent and return these DVDs to any of the thousands of locations Australia-wide. Common locations for kiosks include shopping centres and supermarkets. In fact, Oovie has a strategic alliance with Woolworths who loves hosting them because they bring in extra snack purchases for the supermarket giant.
Earlier this year, Franchise Entertainment Group (FEG)—parent company of Video Ezy, Blockbuster and EzyDVD operations in Australia—invested $15 million setting up Video Ezy Express, their DVD kiosk offering. This is likely in response to slowing DVD rentals through traditional video stores. Analysts predict hundreds of video stores to be closed down over the next few years under the pressure of new distribution methods. Understandably, FEG is future proofing their retail business.
But surely FEG must know the physical distribution of film media is slowing and moving online? They have had years of experience retailing DVD rentals to consumers in which to observe this trend. Unless, there’s a hidden strategy behind these DVD kiosks …?
It does seem Hoyts has a hidden motive behind Oovie. Hoyts is pursuing DVD kiosks to gain market share which they will attempt to parlay into subscribers of their forthcoming Hoyts Stream service. But this seems like a pretty risky strategy.
Video Ezy Express’s long term strategy? Who knows.
The future of film entertainment is clearly headed in the direction of streaming movie services or on demand digital downloads (possibly both). The expansion of Australian 4G mobile networks and the National Broadband Network (NBN) are sure to make Australia a prime choice for these kinds of services.
In a 2011 interview with Oovie’s co-founder Ian O’Rourke, the question was asked about what effect digital downloads would have on Oovie’s business model. O’Rourke agreed that “… all entertainment will [eventually] end up being downloaded … [but] it will be a few years before there is mainstream adoption of video on demand. We’re capitalising on a window that’s open at the moment.”
At least Oovie realises their business model is likely to dry up soon. FEG managing director Paul Uniacke’s opinion of the digital downloads model is that: “It’s not profitable.”
What do you think? Are DVD kiosks too little, too late? Or, is there a bigger strategic move at play here? How much longevity is left in this market?