NCR to build DVD kiosk business

ATM giant will make more than 11,000 machines by 2010

By Danny King -- Video Business, 9/5/2008

SEPT. 5 | Mel Walter might work for a company that has been in business for 124 years, but he’s still a big fan of spontaneity, especially when it comes to renting movies.

“Seventy percent of people who enter movie-rental stores had no idea they were going there one hour before they arrived,” said Walter, VP of corporate development at NCR, the world’s largest automated-teller-machine maker. “The options you have at home are minute compared to what you have in a 10,000-square-foot store or at kiosks with 4,000 DVDs connected to a server attached to a long-tail catalog.”

Founded in 1884 as the National Cash Register Co., the one-time AT&T unit is investing heavily in a relatively nascent movie-kiosk industry. Each year, the company makes more than 100,000 self-service kiosks, such as ATMs and airplane-ticket-dispensing machines.

In the next 18 months or so, it will put more than 11,000 DVD kiosks into production, and NCR has taken minority ownership positions in two kiosk companies.

“We think a fundamental shift is occurring in the way consumers are obtaining entertainment media,” said Walter, who wouldn’t disclose how much NCR is investing in the industry. “The shift from traditional store distribution to kiosks is a dramatic growth opportunity.”

NCR, which boosted its second-quarter sales 13% from a year earlier to $1.33 billion, looks to gain customers in a kiosk market that’s expected to pull sales from traditional movie-rental stores during the next few years. U.S. consumers will spend $800 million at kiosks by 2010, triple the amount spent last year, according to Convergence Consulting Group. Meanwhile, store rental revenue, estimated at $5.4 billion last year, will fall to $3.1 billion by 2010, according to Convergence.

Last month, NCR announced plans to build kiosks for both Blockbuster and The New Release/Moviecube. Blockbuster, the largest U.S. movie-rental chain, said NCR will make as many as 10,000 Blockbuster-branded installed machines by early 2010. The machines will let customers rent DVDs and eventually might let consumers buy discs and make digital downloads of certain titles, the companies said.

Meanwhile, NCR acquired a minority stake in TNR, for terms that weren’t disclosed, and will make as many as 1,400 new kiosks by 2010 for the No. 2 movie-rental kiosk company behind Redbox.

“We view ourselves as entertainment merchants, not kiosk operators,” said Tim Belton, CEO of TNR. “NCR has made a commitment to this space.”

In July, NCR acquired a minority stake in closely held kiosk maker E-Play in an agreement that will add several thousand self-service DVD-trading machines in GameStop, Dollar Tree and other U.S. retailers within the next few years.

Such an investment isn’t without its risks. U.S. consumer spending on DVDs for the first half of the year was little changed from a year earlier, reflecting the economic downturn and possibly the lingering effects of the high-definition disc format war, which was won by Sony-led Blu-ray Disc in February.

Such a sales plateau might have affected efforts to go public by U.S. kiosk leader Redbox, which in February announced agreements with Walgreens and Wal-Mart that will bring Redbox’s kiosk total to more than 11,000 by the end of next year. Redbox, which is majority owned by coin-exchange-machine operator Coinstar, in May announced its intention to file a prospectus for an initial public offering by the end of June. Those plans were delayed indefinitely by what some movie-rental analysts say were poor stock-market conditions.

Additionally, the growth of direct-to-home delivery, in the form of cable video-on-demand, video streaming or downloads, is seen by some as a long-term threat to DVD as the primary mechanism for viewing movies from home.

Still, Walter insists that the prospect of streaming replacing DVDs as the primary method of home entertainment delivery is a long way off.

“Video-on-demand has been around since 1991 and has still has not approached 10% of the media market in North America,” Walter said. “As we make the transition to high-def Blu-ray, the size of the files are going from a couple gigabytes to about 30GB, so packaged media has a huge advantage in portability.”

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