Hundreds of red movie-rental kiosks will appear in stores across the country in the coming months as U.S.-based Redbox expands into Canada, as the chain looks to take advantage of the vacuum left by the closure of traditional retail stores.
Redbox has just signed deals with Wal-Mart Canada and national convenience store operator Alimentation Couche-Tard Inc. to place its kiosks in stores across the country. The Oakbrook, Ill., company, a unit of Coinstar Inc., has almost 30,000 rental kiosks across the United States.
"[Canada]is the third largest DVD rental country after America and Japan," said interim president Gregg Kaplan, speaking at an investment conference last week. "But at the same time, there is a bit of a void there. "As you might know, Blockbuster Canada and Rogers Video have either already exited or have announced that they're going to exit. So the brick-and-mortar retailers are already out."
There has been a vacuum in the estimated $1-billion Canadian DVD rental industry since Blockbuster Canada was pushed into receivership last year. More than 400 stores were closed across the country as a result, and Rogers Communications Inc. announced earlier this year it would also stop offering movie rentals in its stores.
The combination of streaming video services such as Netflix and rental kiosks devastated the U.S. video store industry over the past decade – stores' market share for rentals and sales fell to about 20 per cent, according to Convergence Consulting Group.
There are some kiosks already operating in Canada. Zip.ca has about 100 kiosks in grocery stores, and electronics retailer Best Buy wants to double its machines – which are typically found in Western Canadian convenience stores – to 130 by the end of the year.
But the services were never seriously marketed in Canada and face content licensing difficulties that have diluted their offerings. Sixty per cent of all movie rental sales in Canada last year took place when someone walked into a store and grabbed a movie off the shelf, according to Convergence Consulting Group in a recent study.
"We feel like Canada now is ripe to do this and we feel like it's time for us to go there in addition to what we're doing in the U.S," Mr. Kaplan said. "And given that there's already a couple of kiosk competitors and the brick-and-mortar folks have exited, the time is right ... we don't want to lose that opportunity."
Mr. Kaplan wants to see about 2,500 kiosks in Canada within the "next few years," but said the company will initially focus on Vancouver and Toronto.
"Historically, a pretty good rule of thumb, what we've seen in other businesses is that Canada can get to roughly 1/10 the size of the U.S. market," Mr. Kaplan said. "We're not projecting that yet because we haven't had the experience there, but it feels like it could be sizable."
The company's self-serve kiosks will charge Canadians $1.50 for a standard definition new releases or $2 for a Blu-ray. Video games will also be offered, at $2.50.
"We set the price points at a level where we think we can get similar demand and profitability," Mr. Kaplan said. "The brick-and-mortar competitors, when they were there, were at U.S. kinds of levels. So $4 or $5."