Video rental startup Planet DVD launches

Business thriller or romantic fantasy? Startup venture Planet DVD casts video rental kiosks as a growth market.

What goes around comes around; the maxim rings true in the case of Jim Gormley, a 25-year veteran of the Canadian video rental business. Not too long ago, Gormley was at the helm of the Jumbo Video chain and at the mercy of Blockbuster’s rapid expansion, which eventually led to Jumbo Video’s sale to Quebecor Inc. Today, Gormley is looking to capitalize on Blockbuster’s fall from grace with the rollout of Canada’s first franchised video rental kiosks.

Blockbuster’s exit left “a significant gap” in the rental market, Gormley contends. As the new president of Planet DVD, he intends to fill it with slick, new made-in-Canada vending machines.

Needless to say, the verdict is still out on how big that gap actually is. Unlike Americans, Canadians have never warmed up to video rental kiosks. Although they’ve been around for nearly a decade, kiosks had just a 2% sliver of the $1.1-billion Canadian video rental pie in 2011, according to Convergence Consulting Group. By contrast, the NPD Group, a market research company, pegs the U.S. kiosk share at more than 35%.

Still, looking ahead, Russ Crupnick, NPD’s senior vice president, industry analysis, says he expects kiosks to remain viable for at least the next three to five years. “Despite everything that is going on with digital—great penetration by Netflix, by cable in the form of video-on-demand, iTunes and all of those things—physical media is still the most popular way of watching a movie in the U.S.,” he says.

But holding a market is one thing; for Gormley’s plan to work, kiosk rentals in Canada will have to grow. Gormley’s betting that with Blockbuster out of the picture and Rogers already reducing its retail footprint and scaling back its DVD rental business, the opportunity exists. Planet DVD plunked its first unit in front of a Mississauga, Ont., Sobeys in early March, and at least nine more are planned for other Sobeys as part of a pilot project. Agreements with other retailers are also in the works.

Gormley’s not the only player who sees a potential opportunity— recently shifted its focus to kiosks over its traditional mail-order business. Both are going after the 65% of Canadians who aren’t on the digital bandwagon. “We are targeting what we call the ‘mass market’ people who may not have the ability to download or stream a movie,” Gormley says.

Kiosks do have advantages: they don’t require movie watchers to commit to recurring subscription fees or require them to upgrade their existing home theatre equipment. Plus, services like Netflix are still limited to mostly second-run films, while high-volume downloading raises the prospect of higher Internet service provider fees.

Pricing will be crucial. A new release at a Planet DVD booth costs $3 per day—cheaper than a typical Canadian video store, but more than double what Americans are used to paying at their kiosks. For example, Oakbrook, Ill.,–based Redbox, which has 35,400 machines and the lion’s share of the U.S. market, charges US$1.39 for new releases. That discrepancy bears watching, given that Redbox has plans to test the Canadian market.

Gormley isn’t concerned. The fact that bigger players are eyeing the market merely reinforces his faith in kiosks. “They told me 25 years ago that home video would only last a couple years,” he says. “They were wrong then, and I still think that they’re wrong.”