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Redbox puts DVDs in circulation for $1 a day

Those who think soon we'll all be downloading movies rather than driving to the video store be advised: There is another plot unfolding that sprang from an unlikely place.

Behold redbox, a vending machine that coughs up DVD rentals for $1 per night.

Twice the size of a Coke machine, each redbox offers up to 150 of the newest titles at the door to supermarkets, drugstores, fast-food outlets and discount stores.

Cooked up by fast-food giant McDonald's Corp., the joint venture's controlling partners at Coinstar Inc., the vending machine operator that makes a living sorting people's pocket change, has already deployed more redboxes than Blockbuster has U.S. stores.

It's the latest threat to Blockbuster, Movie Gallery and Hollywood Video stores that were put on the endangered-species list by mail-order video houses like Netflix. In fact, Blockbuster Inc., which countered with its own mail-order service and $1.99 movie digital downloads through Movielink, is testing its own $1-a-night vending machine called Blockbuster Express. The first few bring 24-hour service outside Blockbuster stores and in places such as Papa John's Pizza in Lexington, Ky.

"We see our future as being anywhere, any time and any way people want to access video," said Randy Hargrove, spokesman for the Dallas chain.

So far Tampa Bay is virgin video vending territory, but changing fast. Albertsons installed Movie Cube vending machines at its Florida stores seven months ago. Redboxes that appeared at the two Wal-Mart Neighborhood Markets in Tampa in November will get lots of company now that Wal-Mart signed a deal to put them in half its U.S. stores within 18 months. Walgreen Co. on Tuesday confirmed a nationwide redbox rollout at virtually all its 6,000 drugstores. Winn-Dixie is testing them in Jacksonville. Publix Super Markets Inc. is testing a rival system called New Release in South Florida.

Video vending is pretty simple. Machines accept payment cards, not cash. Because you must be 18 to get a credit card, operators don't flinch at stocking unattended machines with R-rated movies (although some towns elsewhere have stopped that).

There are no late fees. Redbox tacks on $1 a day up to $25. Then you own the DVD.

One Achilles' heel: The most in-demand titles (capacity is 500 DVDs) can be sold out too often. To limit such heartburn, customers can reserve a title before leaving home on redbox.com.

When a machine goes on the fritz, help is a toll-free call. Most problems are fixed remotely with no repair trip.

Retailers get a cut of the cash. But they love anything that means a return trip, even if DVDs can be returned to any redbox.

McDonald's executives hit on video vending while brainstorming ways in 2002 to make their stores more relevant and convenient. The burger giant put up $10-million and owns 47 percent of redbox. Coinstar, which developed the network, this month took controlling interest after investing $37-million.

Rivals have popped up. But with 7,000 machines, redbox has triple the closet competitor. Revenues tripled to $133-million in 2007 and are forecast to top $250-million this year.

"Today we have 60 percent of the market, but we'd be happy with 20," said Dave Cole, Coinstar chief executive officer. "We see 10,000 machines by 2010, 60,000 someday."

Video vending is less than 1 percent of video retail. As a startup, redbox is unprofitable.

The venture cuts overhead dramatically. No stores, clerks or overhead stocking 5,000 videos. The top 100 videos offer redbox the cream that generates two-thirds of video rental money.

Coinstar also owns thousands of all those stuffed animal cranes, kiddie rides and gumball dispensers that flank the doors at many stores. Coinstar will replace half its arcade amusements at Wal-Mart with coin counters and redbox.

That alone should qualify the movement as a public service.

Mark Albright can be reached at albright@sptimes.com or

(727) 893-8252.

Slide card, get DVD

• What is it? A fully automated video kiosk, each redbox is stocked with more than 500 DVDs.

• How does it work? To rent a DVD, consumers touch a screen to select a movie, swipe a credit or debit card, and the DVD comes out. The cost: $1 a night per DVD. When you're done, drop it off at any redbox location. Keep it 25 days and you own it — for $25.

• Where is it? Redbox kiosks are already in roughly 7,000 locations nationwide but have a limited presence in the Tampa Bay area. That should change quickly with deals to put them in most of Wal-Mart's 3,500 stores nationwide, most of Walgreen Co.'s 6,000 drugstores and in select McDonald's and Winn-Dixie stores.

Redbox puts DVDs in circulation for $1 a day 02/26/08 [Last modified: Tuesday, February 26, 2008 11:34pm]

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