NEW YORK CITY-A new movie and game rental concept is being rolled out in Duane Reade drug stores this month. It relies on a 30- by 30-foot vending machine from locally based MoviebankUSA that contains between 1,500 and 2,000 titles. MoviebankUSA is a partner of Video System Italia, which has approximately 30,000 similar machines installed throughout Europe, where the concept has been in operation for about five years, according to Olivier Delouis, MoviebankUSA’s president and founder.

The vending machines represent direct competition with video stores, such as Blockbuster, and offer two primary benefits to consumers, Delouis says: “affordability and convenience.” Prices range from as low as 99 cents for a six-hour rental to $2.49 for 24 hours to customers who become MoviebankUSA members.

Membership is free, and in addition to preferred rates on rentals, it offers double the value of a prepaid membership card on a dollar-for-dollar basis, beginning with an initial $10. The new member who prepays $10 gets $20 worth of rental power. The $100-prepaying member gets $200 worth of rentals. Customers do not have to become members, but can use a credit card and rent movies for $3.45 for 24 hours, which is still about 50 cents less than prices at video stores or through video-on-demand, according to Delouis.

Consumers can enroll for membership through the MoviebankUSA website, a toll-free number staffed by the vendor, or onsite registration at a Duane Reade unit equipped with a MoviebankUSA machine. Currently 10 Duane Reade stores have the machines and they are being installed at a rate of two per week until year-end, Timothy LaBeau, the drug store chain’s senior VP of merchandising, tells GSR. “By year-end we’ll have 30 in place, and then we will evaluate their success. So far, they are doing better than we anticipated,” he says.

While acknowledging that the vending machines are profit centers for the chain, he and Delouis decline to say what percent of profit goes to the retailer. “We see them more as a traffic-builder and a complement to our other services and sections, such as food and OTC medications, that make us a one-stop shop for customers,” LaBeau says. “We’ve tried to pinpoint them to our stores that are open 24 hours, that’s where they’re doing especially well.”

The movie rental business is currently undergoing considerable change and increased competition, says analyst Dennis McAlpine of Scarsdale, NY-based McAlpine Associates. Chief among them are online subscription services through which, for a monthly fee, consumer-members order online and have a set number of movies or games delivered each month. One of these subscription services, “NetFlix, has about 2.5 million subscribers,” McAlpine says, “which is 2.5 million high-volume renters who are no longer going to video stores.” Blockbuster, Amazon and others are entering this field, which McAlpine believes will reduce video store traffic even more.

Video on demand, increasing offered to cable-TV subscribers “represents a relatively small proportion of home movie consumers,” he says, “but we will see a lot more of this in the future. Add to this cheap sales of new and used DVDs, particularly in children’s titles,” he adds. Of video vending, McAlpine says, “Initial video vending machines simply did not work well. While the concept may be viable, there have been problems with the technology.”

LaBeau tells GSR, “there have been no problems with the (MoviebankUSA) machines. They’ve performed very well. The technology, which originated in Europe, is very technologically advanced, and it’s simple, as simple as an ATM.” He says MoviebankUSA personnel visits Duane Reade stores that have the machines about three times a week. “The machines are monitored by a computerized system that tracks the movement of titles,” he adds, “so Moviebank’s service department adjusts reloads of the machines according to that tracking.”

MoviebankUSA also adjusts each machine’s inventory according to neighborhood preferences, says Delouis. “In Greenwich Village, for example, we include more foreign film titles. But new releases,” he says, are the real name of the game.” Like video stores, MoviebankUSA gets new movie releases three months after movies open at theaters, while vide-on-demand must wait six months for new releases. “This is a definite advantage,” he says.

Delouis tells GSR that MoviebankUSA anticipates announcing a similar partnership with a major supermarket chain soon, and he says his company also plans to target office buildings and fast food restaurants. Additional plans call for installing freestanding kiosks in suburban and urban locations, some at existing retail venues, such as convenience stores, and others at locations leased by MoviebankUSA in towns and at malls and shopping centers, where he says about 500 sf would be required for installation.

Duane Reade is the largest drug store chain in the New York metro area. Of its approximately 224 stores, 104 are in Manhattan. According to Hoover’s, because of Manhattan’s dense population, Duane Reade “has more sales per sf than any other drug store chain.”

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