Las Vegas a test market for new generation of Red Box kiosks

Jennifer Shubinski

Friday, Aug. 26, 2005 | 11:07 a.m.

REDBOX LOCATIONS

Would you like fries with that movie?

In an effort to revolutionize the video rental industry and change the way people think about how they rent movies, McDonald's Corp. has been quietly installing DVD rental vending machines in its restaurants and Smith's Food & Drug Stores throughout the Las Vegas Valley.

Similar to an ATM machine, consumers simply swipe a credit card, pick a movie using a touch screen and wait for it to emerge from a slot, encased in plastic. The price: 99 cents a day, plus tax.

But don't expect to rent such classics as Gone with the Wind or Citizen Kane. Redbox stocks new and recently released movies, updated every Tuesday.

Redbox started rolling out its automated kiosks in the Las Vegas Valley in 2003, acting as a test market for its grocery store locations. There are now nine machines at area Smith's Food & Drug Stores and at five McDonald's.

Redbox is in more than 550 locations nationwide, in metro areas such as Denver, Washington D.C. and Houston. The machines were introduced in the Salt Lake City area as part of a multi-city national test this summer, located in most of the area's McDonald's restaurants.

"We're taking advantage of customers growing comfort and acceptance of automated retail experiences," said Greg Waring, Redbox senior director of marketing. "People check into airplanes at kiosks and have used ATMs for a long time. DVDs is the next natural step as customers get more comfortable with this type of technology."

By the end of the year, Redbox will be in more than 1,000 locations nationwide, he said.

In Denver, the company's most mature market, people rent more than 200,000 DVDs a month from Redbox's automated kiosks, Waring said. The company recently surpassed more than 3 million Redbox DVDs rented in Denver alone, he said.

"One of the things our customers have told us, is the more convenience we can provide to them, the better the performance (of the machine) is," Waring said.

Part of Redbox's appeal, executives said, is that it is simple and easy to use.

There are no membership forms to fill out, no late fees, no need to remember when the movie is due. In Las Vegas, customer's credit cards are charged 99 cents plus tax ($1.06) for each day the movie is checked out. At the end of 25 days, the card is charged a total of $25 plus tax and charges cease.

By the end of the year, a new generation of Redbox kiosks will replace the older machines in Las Vegas and in other markets, Waring said. With the new machines comes more technology and the inevitable price increase. Instead of 99 cents, movies will now cost $1 a day ($1.08 plus tax in Las Vegas).

Current Redbox machines hold between 100 and 250 movies. The new kiosks, built by California-based Solectron Corp., can hold up to 500 movies.

"The main problem that we had is having machines that didn't have sufficient capacity to meet consumer demand," Waring said. "In Denver, they would physically empty out. It's kind of a nice problem to have."

The upgrades sounded good to Henderson resident Kelly Hawkins, 26. Hawkins said he's been using the kiosks for about a year and his only complaint is the movies he wants to see are often checked out.

"It's one thing that's irritated me, they're always rented," he said Sunday afternoon as he swiped his card to check on the availability of movies at a Redbox in Smith's on Valle Verde.

Hawkins was pleased to find the movie he wanted to rent, Sin City, was available.

The new kiosks will allow people to search for movies by title and release date, and unlike their older counterparts also offer directions in Spanish. Customers also will be able to rent more than one video at a time. Currently, if someone wants to rent to movies, they have to swipe their credit card twice.

Renters also will be able to enter their e-mail address for special offers and can opt to have receipts e-mailed to them. The machines also have the ability to sell movies in their original cases, although that option won't be turned on right away, said Arun Dev, regional operations supervisor.

The biggest advantage with the new machines is that renters will be able to return a movie to any Redbox machine in the country.

"That's something that's been very popular with consumers," Waring said. "Once we do convert over in Vegas, they'll have the same benefits there."

Las Vegas' 14 automated kiosks are expected to be upgraded by the end of the year, he said.

Marsha Gilford, Smith's spokeswoman, said the Redbox locations at area Smith's is also a test for the grocery store chain.

"So far it seems to be very well received and is a convenience item that our shoppers enjoy," she said. "As we have chosen to remove our video rental departments in stores, this has been a nice addition."

Whether the automated kiosks will be placed in more Smith's in Las Vegas and elsewhere remains to be seen, Gilford said.

"At this point, we don't have anything we can discuss," she said. "It's a test and if it's successful we'll consider that."

Redbox DVD and its growing popularity presents yet another challenge to traditional retailers such as Blockbuster as the video rental industry continues to evolve and as consumers have more demands on their time.

After Blockbuster reported a 1.6 percent decline in second quarter revenues this month, accompanied by a net loss of $57.2 million, company Chief Executive John Antioco said in a statement that the company faces many industry challenges, both short-term and long-term.

Following in the steps of Internet-based Netflix, Blockbuster launched its own online subscription service in August 2004. It also eliminated late fees at the beginning of this year.

Diane Shand, director at Stand & Poor's, said Blockbuster has been transforming itself into an entertainment store, where customers can rent, buy, and trade videos and games. That is increasingly important as rentals have continued to decline for all retailers over the past three years.

"They're looking to put more things in their box," she said of Blockbuster.

But she said with so many demands on consumers' time, people are just not watching as many videos. Renting videos is often an impulse and giving people the chance to rent at places like McDonald's makes it easy for Redbox to capture that purchase, she said.

Waring said while Redbox is a unique concept, he doesn't envision it actually stealing business away from traditional video rental retailers.

"Sure there will be some of that," he conceded. "But our research shows that it's brining new customers into DVD rental or back to DVD rental."

A version of this story first appeared in In Business Las Vegas.

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