By Nikki Baird, in cooperation with RetailWire
3/11/2008
While kiosks have been tackled as a strategy to improve customer service in the retail store, one area seems to be having consequences of a different sort: in-store DVD kiosks threaten serious cannibalization of traditional video rentals. It’s impacting media sellers, too. Borders just recently opened their new format store to tackle this problem, and their response has been to bring the digital world into the store – enabling downloads of music, and certainly poised through this infrastructure to enable movie downloads as the capability matures.
RetailWire recently asked its panel whether kiosks would kill the video store, and the discussion was far more wide-ranging than I expected, with a lot of people stumping for traditional distribution of media.
Each business morning on RetailWire.com, retailing execs get plugged in to the latest industry news and issues with key insights from a "BrainTrust" of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from the RetailWire Instant Poll.
Kiosks and Online Killed the Video Store
By George Anderson, Editor-in-Chief, RetailWire
Things are not looking good for retailers in the video store business. For one thing, sales of DVDs are down. For another, consumers are increasingly likely to rent titles and when they do, they seem to prefer placing their order online or complete the transaction at a kiosk.
Consider the numbers. Sales of DVDs fell 3.2 percent last year to $15.9 billion and further declines are projected for this year and next, according to Adams Media Research.
DVD rentals grew to $8.2 billion in 2007 and Adams expects the market to reach $8.5 billion by 2012.
"Kiosks and online rentals are the two growing segments of the packaged video rental market, which means the traditional video store is having to struggle to keep its market share," Jan Saxton, a vice president at Adams, told Reuters.
According to Adams, kiosks are expected to do $926 million in business in 2012 up from $198 million today. The online subscription business will grow from $1.8 billion now to $2.9 billion in 2012. Store rentals are expected to fall from $6.2 billion last year to $4.6 billion over the next four years.
While most are aware of the affect that the Netflix online service has had on the business of renting videos, fewer may be aware of the sizeable impact that kiosk systems, specifically those operated by Redbox, are having.
Just this month, Redbox has made two major announcements with Wal-Mart and Walgreens agreeing to place the video rental kiosks in virtually all their stores in the U.S. by the end of 2009. The Redbox kiosk holds more than 500 DVDs that consumers can rent for $1 a night with the swipe of a credit or debit card. For added convenience consumers can reserve a title online and pick it up at the kiosk. Returns can be made to any location with a Redbox kiosk.
Discussion Questions: Are the days of the video store numbered? Does the emergence of video kiosks also mean that video departments in mass merchants and other stores will look considerably different in future years?
RetailWire Instant Poll Results:
RetailWire BrainTrust Comments:
VOD is still in its infancy, and will be for a number of years to come. The studios are taking steps to prop up declining video sales numbers by adding a download of a film (which will take 5-10 minutes) in-pack with a new DVD. There will be consolidation of video stores, but they will not go away overnight. I'd be more concerned about movie theater going than renting videos.
Max Goldberg, Founding Partner, The Radical Clarity Group
I have consulted in the video industry for several years (several years ago), both on the manufacture/distribution and on the retail side. Even then, there was awareness that this is a shrinking market and that the industry is better suited for digital distribution, provided all the pieces are in place.
I don't think this is a story about how the kiosk killed the video store. The kiosk is a transitional retail model until we can get to a completely digital video supply chain. I mean, when you have a product demand curve that pretty much is hyperbolic--almost unlimited demand at first, and dropping off rapidly to a very low steady state demand, it's nearly impossible to balance creating enough physical product to meet that initial demand without killing the rental business on the back end when you don't need all that physical inventory anymore--as Blockbuster struggled with "previously viewed" sales cannibalizing their rental revenue. Digital distribution is the answer.
Sure, not everyone is going to participate in the digital age, and kiosks will probably fill their movie rental needs just fine. But I think a digital world like the ad where the guy behind the counter offers the customer "every movie that was ever made" is closer than you think.
Nikki Baird, Managing Partner, RSR Research
I agree that the kiosk is transitional. iTunes just became the #2 music retailer behind Wal-Mart, and I expect the same will happen in video, especially for rentals. You can now choose an HD movie rental via cable or satellite and usually start watching the next showing within 1/2 hour for hit movies, and from the download services like Netflix or AppleTV/iTunes, choose from thousands of movies (and hundreds of HD movies for now) and start watching in no more than a few minutes.
What about those quirky video store clerks who can help you find just the right flick for the evening? Alas, they are doomed. But the community aspects of the online services are a pretty good substitute, and lists of movies that friends enjoyed who have proven to have similar tastes as you can help you find some real gems.
Jeff Weitzman, Chief Marketing Officer, Coupons Inc.
Before we bury brick and mortar and kill the kiosk in favor of the divine download, let's consider all the purchase drivers at work here. There are some consumers for whom some purchase occasions simply require "being immersed in the medium." That's why we still have bookstores in the face of Amazon and Audiobooks.
For other consumers, impulse is king. I want "something" when the mood strikes. If it is a soft drink, and the closest thing is a vending machine, I'll probably pick from whatever is there. If it is entertainment, and what is in front of me is a kiosk, I'll probably pick from whatever is there.
For the vast majority of consumers, going to the computer to order something to be delivered by mail is not "immediate gratification" either. That is a planned purchase that requires effort and patience. The Netflix purchase experience has more in common with a Lands' End order than it does with a Redbox rental.
As to the divine download--yes, it is coming. But it will only be truly viable when the download is to my TV screen, NOT to my PC. People over the age of 30 do not watch movies on their laptop unless they are afraid their spouse is going to catch them.
But here's the real key to the longevity of traditional formats. True entertainment enthusiasts tend to use multiple channels to satisfy different needs and usage occasions. They love movies--period. However they come.
Ben Ball, Senior Vice President, Dechert-Hampe
Read the entire story and RetailWire discussion at:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12789
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