Blockbuster challenges redbox in DVD-rental kiosk market

Blockbuster video stores are located on almost every street corner or shopping center in the United States. Blockbuster has 4,800 stores in the 50 states. But the movie-rental powerhouse recently has seen strong competition from other retailers, most notably DVD kiosk companies such as redbox and DVDPlay.

Now, Blockbuster is moving out of its traditional brick-and-mortar stores and moving into its competition’s territory — kiosks.

The company is testing the Blockbuster Express kiosks at select Papa John’s and Family Dollar locations in the Lexington, Ky., area. Plans are to roll out a handful of test kiosks at rural locations in another state, said Randy Hargrove, a Blockbuster spokesman. Officials say they are firmly committed to the traditional store model, but the company wants to explore different ways of getting videos to its customers.

“It’s our job to find ways to bring entertainment to consumers, the way they want it,” Hargrove said. “Kiosks provide us with a new way of doing that.”

The Blockbuster Express will hold about 250 new-release and popular movies and cost USD 1 a day. This differs from Blockbuster’s in-store practices of charging customers USD 4 a movie for two days.

Papa John’s, based in Louisville, Ky., has partnered with Blockbuster before on promotions for the movies “King Kong,” “Superman Returns” and “Spiderman 3.”

“Pizza and entertainment go hand in hand,” said Chris Sternberg, Papa John’s vice president of public relations.

Despite a large number of delivery orders, many Papa John’s locations average a 20-40 percent carryout rate, Sternberg said. Papa John’s hopes these kiosks will help drive more carryout orders, since customers will be able to pick up a movie only at the store.

Blockbuster plans don’t stop at kiosks. The company wants to help customers connect their iPods and BlackBerries to their favorite movies and games in a service the company hopes will drive traffic back to its stores. Blockbuster chief executive officer Jim Keyes said in a November interview the company is talking to both hardware and software makers about turning the video-rental chain into a destination for loading digital-media players with movies and games via kiosks.

Hargrove said Blockbuster plans to explore these new methods and transition into a diverse and exciting place for consumers.

“We will give (consumers) media however they want it,” he said. “By store, by mail, by vending machine and eventually by digital delivery.”

Redbox provides stiff competition

Blockbuster’s foray into the kiosk space comes on the heels of redbox announcing it has surpassed Blockbuster in number of U.S. locations. Redbox CEO Greg Kaplan said redbox started 2007 with 1,950 kiosks and will end the year with an additional 4,500.

“Redbox's growth potential is unlimited as we continue to expand in major grocery chains and select McDonald's restaurants, and continue to explore alternative retail partners such as drug stores and mass merchandisers,” Kaplan said.

Despite redbox’s lead in locations, Blockbuster has a commanding lead in the number of actual DVD rentals, company officials say. Each Blockbuster location carries an average of 5,000 different titles compared to redbox’s limited selection — redbox kiosks carry about 500 DVDs. Neither Blockbuster nor redbox would give exact rental numbers, but redbox did acknowledge it does not have as many daily rentals as Blockbuster. Kaplan says redbox is the fourth-largest renter of DVDs in the United States.

As for Blockbuster’s entry into redbox’s territory, Kaplan said redbox’s services are unmatched.

“Redbox executes extraordinarily well,” he said. “Redbox has become very good at designing and deploying a user-friendly kiosk and related software, distributing millions of new-release DVDs to these kiosks each week and, finally, maintaining the kiosks so they are always up and running.

“The redbox service is unrivaled by any services currently available or on the horizon.”

Over the past few years, redbox has averaged 300 percent growth per year. Kaplan said he believes it can sustain that rate.

“We expect this growth to continue at a rapid pace through 2007 and beyond as redbox expands its leadership position and becomes a household name in communities nationwide,” he said.