Hoyts buys film rental machine company Instant DVD

The owner of a DVD rental vending machine business acquired by cinema company Hoyts admits that his business will eventually give way to digital models already used by companies such as Apple and Telstra.

“I think we agree in the longer term that the majority of rentals will be digitally distributed, and there isn’t a debate on that, but what most people disagree with is the time frame. People will enjoy movies and have an online subscription, but still rent physically and in the medium-term a majority will rent from our company.”

While O’Rourke says that the company will embrace new technology in line with customer demand, “[digital] certainly isn’t on our radar”.

The company currently has one major competitor in the vending machine sector, a company called RedRoom. But it does face some similar offerings from digital companies such as Quickflix, Bigpond Movies and Apple’s iTunes store.

“If you look at QuickFlix and Bigpond Movies, my question to them is, why haven’t they got a large number of subscribers compared to US equivalents, like Netflix, which has millions? There’s a glitch in the system as to why they haven’t taken off.

“The other thing we’ve seen in the US is those players who try to deliver movies digitally need to have a hybrid strategy. Many customers want a physical disc today, but if they look at setting up a digital strategy only, people get frustrated with finding a download, waiting for the right bandwidth, etc.”

O’Rouke would not comment on the price Hoyts paid for the business, although Hoyts executive chairman David Kirk says the business cost “a few million”. Founders O’Rourke and Andrew Evetts will remain with the company and will be subject to earn-out clauses.

O’Rourke says the decision to make a deal with Hoyts was motivated by growth prospects, with the company now set to increase its number of machines from 80 to over 180 by Christmas.

“It’s a good deal for both parties. They are an entertainment industry leader, and they are doing a lot out of home entertainment. It gives us the ability to tap into the resources of the industry’s leader, in a way as a smaller company we wouldn’t be able to.”

The vending machines charge $3 per night for a film, with users paying by credit card. A user then returns the DVD the next day, with the users’ credit card charged a final fee of $36 if the film is not returned after a fortnight.

O’Rourke says the company will target supermarkets and shopping centres, with plans to aggressively increase the number of machines around the country over the next 12 months.

“We have machines in Woolworths, IGA and various other independent supermarkets and some convenience stores. I guess for us this endeavour is about how many we can put in an area that will make it convenient for customers. You can rent from one machine and drop it in any other, so we need to put a number of machines in one area to make it easy.”

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But Stephen Langsford, chief executive and founder of Quickflix, believes physical DVD rentals are on their way out and that digital distribution should be the immediate focus.

“There is a place in the market for Kiosks which serve a narrow range of titles given their limited storage capacity of 200 DVDs or so. It is quite compatible with the Quickflix model given we serve the whole range – over 37,000 titles and provide convenience of online ordering and delivery. The drawback with Kiosks is limited range and you still have to get the DVD back to the kiosk you rented it from.”

“Uptake on online DVD rental in Australia is bang on that of the US experience (Netflix started six years before Quickflix). In the past three months we have added over 3000 paying subscribers alone and we see market potential of well over a million subscribers.”