Would you like a DVD rental with your Happy Meal?

McDonald's to supersize its use of kiosks that offer patrons the latest releases. Count grocery stores in, too.

REDWOOD CITY, Calif.--In the near future, consumers may be able to pick up Hollywood's latest DVDs when getting a Happy Meal.

Fast-food giant McDonald's is looking at installing self-service DVD kiosks from DVDPlay into restaurant locations nationwide over the next several years, DVDPlay CEO Jens Horstmann, CEO of the Los Gatos, Calif.-based company, said during a presentation at the Consumer Technology Ventures Conference here.

McDonald's has been running a trial with 157 of the machines in 107 Denver-area restaurants. Grocery giants Albertsons and Safeway have signed deals that could lead to machines in, respectively, 3,000 and 3,500 locations each. Even rental outlets (and DVDPlay competitors) like Blockbuster will invest in the machines.

"(Movie rental outlets) are in dire need of automation," Horstmann said.

Horstmann initially said, and wrote in a presentation, that the company had already signed contracts to deliver close to 25,000 units to companies across the United States over the next few years, but subsequently backtracked, stating that the current contracts with these companies do not yet have volume commitments.

"We've reached no conclusions on what the future plans are for this concept," said a McDonalds spokeswoman.

Like the blacksmith and buggy whip maker of earlier eras, the video store slacker is rapidly becoming an anachronism, thanks to new technologies and businesses. A number of companies have followed Netflix into movie delivery by mail.

In the United Kingdom, for instance, MSN has kicked off a DVD rental delivery service in conjunction with Video Island, company CEO Saul Klein said at the conference. Next month, broadcaster ITV will roll out a movie club with the company, he said. "It's like NBC" in Britain, he added.

Meanwhile, several cable companies and movie studios are experimenting with direct delivery of movies to PCs and TVs.

Video-on-demand systems, however, won't likely become the delivery vehicle of choice for content for another five to seven years, Horstmann said. Between now and then, the kiosk company hopes to combine the instant gratification of retail with the low prices of the mail order crowd.

Cheaper movies
The DVDPlay kiosk essentially eliminates much of the labor and real-estate costs with movie rentals, which is not an efficient business. The vast majority of square footage in movie rental outlets is taken up by storage. Two of the systems can save a rental outlet $75,000 a year, Horstmann said.

With the kiosks, movies can be rented for bargain prices. Movies from the kiosks generally rent for 99 cents to $1 a day, compared with the $3 to $4 often charged at standard rental outlets. Some retailers may also give free movie rentals as specials if, say, a shopper buys $50 or more of groceries.

One chief disadvantage is that the machines hold only a limited number of movies. A small version holds 100 DVDs, while a larger one holds 350. Consequently, DVDPlay kiosks will offer only the latest releases.

The company garners revenue in two ways. Many customers, such as McDonald's, will buy the machines and retain the rental revenue themselves. The units cost about $12,000 each; DVDPlay also charges a $1,000 annual maintenance fee. With Safeway and some others, DVDPlay will retain ownership of the systems, and the two will divide the rental revenue.

The DVDPlay box looks pretty much like a self-service photo kiosk or an ATM. An LCD screen that sits on top of the kiosk plays movie trailers, while the body of the system, which holds the DVDs, is festooned with advertisements and a credit card slot for transactions. It takes up 4.5 square feet of floor space.

"It can be moved with a hand truck" and takes about 20 minutes to install, Horstmann said.

Internally, the kiosk is based on PC components. All of the units are hooked up to the Internet so that a manager in a central location can examine what gets rented. In the McDonald's trial, an IT specialist in Chicago controls the Denver systems.

So far, about 400 machines have been installed in the wild, and the company has signed contracts (or is in the last stage of negotiating contracts) to deliver machines to 25,000 different locations over the next several years. Other potential customers include the Winn-Dixie Stores chain and military bases.

The company is on track to hit breakeven by the first quarter of next year and has set a goal of $52 million in revenue for 2005.

Investors include Hunter Capital and Chuck Berger, chairman of the company and CEO of voice recognition specialist . Several of the 36 employees worked with each other at various times at AdForce, Sun Microsystems and Apple Computer.

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