DVD manufacturing-on-demand rollout delayed

Kiosk companies rework business plan

By Jennifer Netherby -- Video Business, 8/4/2008

AUG. 4 | Don’t expect to find many kiosks burning DVDs on demand in stores this fall.

Despite expectations of large-scale pilot tests and a commercial rollout this year of kiosks that would save retailers aisles of shelf space while offering thousands of movies and TV shows on demand, technical and economic challenges have led to a shakeup among DVD manufacturing-on-demand players that is likely to push most retail launches back into 2009.

Walgreen’s, which was expected to do a large pilot test at stores this year, has been forced to delay those tests until 2009 after TitleMatch, the kiosk company it was working with, essentially shut down.

TitleMatch, which also had a deal with Chicago grocer Peapod, quietly laid off its entire staff May 30 and is effectively out of the business after running out of money, according to a filing by parent company Protocall Technologies with the Securities and Exchange Commission.

Polar Frog Digital has pulled its kiosks from most retail locations after a year of pilot tests at airports, hardware stores and drugstores as it reworks its business model. The digital kiosk company has formed an exclusive partnership with technology company Nero for its liquid media technology. Nero’s technology will allow Polar Frog to make its kiosks one-stop shops where consumers can burn movies, TV, music and books to DVDs and CDs or download them to flash drives and USB devices, CEO Todd Rosenbaum said.

Nero’s technology includes CSS copy protection on burned DVDs and is based on open standards already adopted by the DVD Forum and major studios. The companies plan to license the technology to other kiosk players.

Polar Frog will roll out kiosks with the new technology this fall at college campuses, one of the few companies that will expand its reach in the second half of the year. The reconfigured kiosks will initially feature movie, TV and music downloads and DVD/CD burning. Polar Frog hopes to add downloads of textbooks and eventually burning of Blu-ray movies, though the latter is dependent on approval by the DVD Forum.

“We have all of these features that can be enabled when the timing’s right; we don’t have to reinvent wheels,” Rosenbaum said of the change.

Rosenbaum said its old model of burning movies to DVD only wasn’t profitable and was a solution for “yesterday’s problem,” rather than addressing the changing way people consume movies and music.

Execs at other kiosk companies say a major launch or pilot test of MOD kiosks won’t happen this fall, as retailers are generally unwilling to try a new technology in the all-important fourth quarter.

Meanwhile, Hewlett-Packard, which launched its centralized manufacturing-on-demand business with great fanfare last summer as a competitor to Amazon.com’s CreateSpace, is also said to be making changes. H-P sold its MOD factory but is continuing to offer backend MOD services through Trans World Entertainment, execs at other MOD companies said. An H-P spokeswoman said that the company is still in MOD.

Kiosk companies and technology partners blame a number of reasons for the setbacks.

“The business model’s a little tricky,” said Jim Taylor, senior VP and general manager of Sonic Solutions advanced technology group. Sonic licenses its Qflix technology to securely deliver films on demand through kiosks. “Some of the business models require a significant upfront investment. That’s tough for smaller companies. … Another [factor] is that the retailers are still trying to figure out how this fits with what they do.”

Polar Frog’s Rosenbaum said many retailers have been reluctant to pay to bring in kiosks, which are unproven at selling movies. Polar Frog had been providing its kiosks free to retailers, but going forward will only work with retailers that pay the cost to operate kiosks.

“The price to play in the game wasn’t worth the price of admission,” Rosenbaum said.

Others also blame a lack of major studio content for making it difficult to sign on major retailers. One exec said the major studios are reluctant to be the first to license content.

Rosenbaum said studios also are unwilling to license movies for kiosks that might be located in stores that already sell DVDs, fearing they might cut into disc sales.

Polar Frog is targeting retailers that don’t carry DVDs, and Rosenbaum said he is hopeful that the company will have two major studio deals in place this fall when it rolls out to college campuses. The company already has deals with independent suppliers Magnolia Entertainment and First Look Studios.

MOD Systems, which is pilot testing music burning and downloading on kiosks in a handful of Best Buy and Circuit City stores, is holding off on including video in its kiosks until it has major studio content, said executive chair and co-founder Anthony Bay.

Meanwhile, other companies are expected to enter the business. A group of former TitleMatch execs, some who exited before the layoffs, have joined another kiosk company, privately held Cenmere.

Sonic’s Taylor said he is still optimistic about MOD. The company is in talks with about 100 different players who want to get into the space, either through kiosks, in-home burning or another variation, he said.

“I’m still absolutely convinced that this business is going to take off,” he said.