Digital-download technology could be next wave for DVD kiosks

How consumers receive entertainment is changing so rapidly that it’s difficult to predict just where the market will be in a few years. However, drug chains that partner with technologically adept service providers could remain players as the business shifts from the DVD-dominated model employed today.

Change in the business can be illustrated by developments at once dominant content provider Blockbuster.

In July, Blockbuster announced that it was adding in-store digital downloads, testing kiosks that perform the function in a handful of stores. Blockbuster chief executive officer James Keyes said earlier this year that download kiosks are part of the retailer’s strategy to establish itself as the “preferred source for digital media entertainment” by providing a convenient service for customers. Keyes predicted that the entertainment business would be predominantly digital in 10 years, despite the fact that consumers haven’t yet embraced downloads.

Released last month, NPD’s “Entertainment Trends in America” study reported that 67 percent of respondents had viewed an owned DVD within the past three months, while half had viewed a rented DVD. Video on demand also got its due, with 18 percent using the media, while 8 percent of respondents reported viewing movies on portable media devices, 6 percent downloaded a movie from a free file-sharing service and just 2 percent paid for a digital video download from the Web.

On the other hand, 52 percent of respondents reported visiting such sites as YouTube to watch streaming video.

Russ Crupnick, NPD’s senior industry analyst for entertainment, said that while the rapid evolution of demand makes predictions difficult, he saw advantages in downloads and on demand as big box retailers, who helped drive DVD sales, re-evaluate the category as its sales slow. Big box retailers drove the development of the DVD business, which a decade ago was high-margin and fast-growing. Now, NPD research pointed to flattening growth, Crupnick said, “so they have to wonder, is it time to devote less valuable floor space to DVD and more to Guitar Hero?”

With less support from the big boxes and shifting priorities at Blockbuster, innovators have an opportunity to grab the attention of consumers.

“There are companies out there, Redbox is a great example, that say, ‘While the traditional rental market is slowing down a little, why don’t we make getting a DVD ubiquitous.’ We’re seeing a shift to making [DVD] a product consumers can get anytime, anywhere,” Crupnick said.

That convenience can have several effects. For one, it makes getting a movie less about a destination, which will change the way consumers think about purchasing. It also promotes new shopping patterns. While it’s convenient to take advantage of such a service as Redbox while picking up a gallon of milk, the opposite also is true.

A kiosk partner provides valuable technological expertise that can be applied as new formats gain adherents. It can adapt its distribution network to new customer preference for digital downloads to DVD or directly to devices.

Satisfying diverse customer preferences is only going to become more important as the character of purchasing changes. “I like the democratic point of view,” Crupnick said. “I think the way consumers acquire, pay, watch and interact with devices is in any way consumers think appropriate. If I have a 50-inch TV with a Blue-Ray player, I can buy or rent, but, as all TV becomes connected, I may turn to video on demand to get something suitable. If it’s just a case of ‘Gee, I just missed last weeks episode of Army Wives.’ Maybe I’ll just watch it on my device on the subway.”