DVDPlay Reels in $20 Million

By Davis Freeberg
Movie-rental company plans to put more kiosks into stores with latest round of financing. June 28, 2006

DVDPlay raised $20 million in financing on Wednesday, giving the movie-rental company the cash it needs to position its kiosks in more locations.

El Dorado Ventures, Emergence Capital Partners, Palo Alto Venture Partners, and Vanguard Ventures participated in the funding equally. DVDPlay has raised a total of $40 million in financing.

The company also named Charles Berger, who has been with DVDPlay since 2001, as chief executive. Mr. Berger has held executive positions in finance, sales, and marketing at Apple Computer and Sun Microsystems.

DVDPlay has its kiosks in grocery stores, convenience stores, and other locations where it hopes to provide easy access to DVDs of the most-popular movies. The red kiosks are similar in size to an ATM but show film trailers and rent out DVDs.

“We don’t have big real estate cost and we don’t have big personnel cost,” said Mr. Berger. “It’s a very efficient business model.”

The company has more than 50 of the machines set up in Safeway supermarkets in Northern California and is in the process of rolling them out nationally. Under its plan, kiosks will be installed in “thousands of locations,” said Jason Green, a partner at Emergence Capital.

Netflix offers the convenience of avoiding DVD rental giants such as Blockbuster, but doesn’t allow immediate access to films. Blockbuster, on the other hand, requires a trip to a separate store and sometimes runs out of hit movies. “It’s a very different proposition than Blockbuster,” Mr. Green said.

DVDPlay hopes that its service fills the gap, said Mr. Berger. The DVD service works essentially like an ATM machine but spits out a DVD for $1.49 for one day and $0.99 for each additional day; there are no late fees beyond that. Movies are returned to the machine.

Although the machines feature only 25 to 35 of the most-popular films, they could store up to 500 titles.

DVDPlay execs and investors believe that the kiosks offer greater convenience than a video store location because they are paired with stores where shoppers might go anyway. Mr. Berger said that they have chosen locations where people would go at least two times a week anyway, such as a grocery store.

Convenience Factor
“It’s better in two ways. First, it’s immediately convenient. You can stop at the Safeway on the way home. It’s instant gratification. Second, it’s just a whole lot cheaper,” Mr. Berger said.

“Today we are in 60 Safeway locations. We’re in over a hundred military bases. This year we’ll get close to a thousand,” said Mr. Berger, who noted the company negotiates a percentage of sales with each chain.

“A broad distribution with Safeway would make them a formidable opponent,” said Heather Dougherty, senior analyst at Nielson//NetRatings. “The instant gratification would be a strong offering for a lot of consumers.”

She said the model is very different from Netflix. “It’s more of an attack against the Blockbuster model because you can do your shopping and then pick up a movie,” she said, adding that the low price makes it competitive.

Revenue Sharing
While the DVDPlay machines feature movie promotions, the company isn’t yet tapping the revenue potential of that. The kiosks have flat panels mounted on top, and the Los Gatos, California-based company has been talking with people about paid ad spots.

“We provide additional screen real estate for people to do advertising,” Mr. Berger said.

The kiosks also have wings that stick out from the sides like billboards, where the company wants to display advertising.