Cheaper movies feed kiosk boom

TNR finds funding to add 1,000 units

By Danny King -- Video Business, 2/21/2008

The three largest kiosk operators are on tract to have a combined 15,350 machines in the U.S. by the end of the year, up 57% from the end of 2007.

“There are a lot more traditional DVD players out there than households with set-top boxes and high-speed connections,” said Belton, whose closely held company owns Moviecube, the No. 2 U.S. kiosk operator. “As long as we keep the price point below the cost of a rental at a store and we don’t have membership fees, we’re going to continue to absorb market share in the $8.5 billion rental business.

The New Release will add about 1,000 of its Moviecube kiosks in North America by the end of the year after receiving about $11 million in funding.

Loblaw, Canada’s largest supermarket chain, will add Moviecube kiosks in 350 of its stores by July, closely held TNR said in a statement. TNR, which trails only Redbox among movie-rental kiosk owners, will add another 650 U.S. kiosks by the end of the year.

TNR, which has about 2,100 U.S. kiosks, said it received $11 million from Washington-based MCG Capital Corp. The company didn’t disclose whether MCG was providing debt or buying equity.

“Expanding into Canada, where movie rental customers have shown a veracious appetite for DVD rentals, is a much anticipated move for us,” said Tim Belton, chief executive officer of Houston-based TNR, in a statement.

Earlier this month, Redbox, which tripled its kiosks to about 6,300 last year, said it will add machines in about 2,700 Wal-Mart stores by the end of next year. Wal-Mart started adding Redbox machines in 2006 and now has kiosks in 800 stores.

Redbox is 95% owned by McDonald’s and Coinstar.

Last month, third-place DVDPlay said it would more than double its machines to about 3,200 this year.

Meanwhile, Blockbuster, the largest U.S. video-store chain, closed about 700 of its 8,500 stores worldwide for the year ended Sept. 30 as it invested in its Total Access online-rental service to compete against rental-by-mail leader Netflix. Movie Gallery, which filed for bankruptcy in October, closed about a fifth of its 4,500 eponymous and Hollywood Video stores last year.

Kiosk operators can charge less for movies because of lower costs from their revenue-sharing agreements with retail partners, said Belton, who wouldn’t specify how sales are split between TNR and supermarket partners such as Kroger and H-E-B.

“That’s very different from investing a couple hundred thousand dollars in a new store and always having three or four people there,” said Belton.