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Movie>Q is a small movie and video game rental chain with a few locations in Southern California. It combines the automated kiosk experience of Redbox with the large selection of titles offered by brick-and-mortar video stores. Movie>Q president and CEO Joe Malugen is one of the co-founders of the now-defunct Movie Gallery/Hollywood Video chain.

Home Media Magazine recently sat down with Malugen and got his take on why his old company failed, how his new company can compete in the evolving home entertainment marketplace, and what he thinks about teetering titan Blockbuster’s chances of survival. Here are some highlights:

Malugen on what Movie Gallery/Hollywood Video should have done differently

“We liked the kiosk business model, but we had thousands of conventional stores that required a $4 average transaction to be profitable. The mistake we made was betting on brick-and-mortar in the face of emerging kiosks. We figured the studios would do something about kiosks and prolong the life of the $4 rental, compared to charging $1 to $2 a rental with no revenue sharing. It seemed to me like simple arithmetic.

We turned down a chance to partner with a kiosk company in 2004 because we believed the studios would never let them get away with that low price. In fact we were convinced that they would do then what some are doing now: Create a 28-day window for Netflix and Redbox because by-mail delivery and kiosks are a different class of trade as defined under federal antitrust laws and, therefore, a delayed window would be clearly legal. Redbox would never have gotten off the ground had that happened.

The current 28-day window to try to save Blockbuster is too late, in my opinion . . . The $2 rental is ingrained in the consumer’s mind. Now, anything over a $2 rental is a rip-off.”

Malugen on Redbox’s effect on the video rental industry and how Movie>Q plans to compete

“Redbox turned the industry on its head with its $2 average rental. There’s no magic in that. Customers like low prices. You just have to figure out how to compete and profit with a $2 average transaction. Brick-and-mortar stores could never compete with that price because of the overhead of leases, labor and other costs. I believe conventional video stores are all going to close before long because they simply cannot compete with a $2 rental.

Netflix, Redbox and NCR have won that fight. The only thing left is the fight between Redbox and NCR over kiosk leases with grocery, drug and convenience stores coming up for renewal over the next couple of years. We will see which of them is willing to pay the most for those locations . . . There is still $2 billion to $3 billion of rental revenue up for grabs.

To compete with kiosks, Netflix and the remaining video stores will have to become low-cost operators. We are confident the Movie>Q business model allows us to do that. The only way is to use technology and automation to cut costs. Of course, you need good people, and I know a few who have extensive video experience. Also, we know how to open stores quickly.”

(via Home Media Magazine)

14 Responses to “Movie>Q CEO: Cheap Rentals are Ingrained in Consumers’ Minds”

  1. Visitor [Join Now]
    rb [visitor]

    Find this Post to be very honest and insightful by Malugen. He admits his/Movie Gallery/Hollywood Videos’ downfall was that all was bet on the continuing thought brick & mortar/ high cost rentals would prevail based on the assumption that the BIG studios would force/prevail/topple ‘little’ newbie low-cost rental Redbox. However, the assumption failed to take consumers into account. Give consumers a choice between b&m HIGH cost rentals or ‘low’ cost rentals newly offered by Redbox kiosks…. Once actually having/given ‘the choice’ by Redbox, it was consumers ‘who chose’ to shut down the high cost rental b&m stores.

    • Visitor [Join Now]
      John [visitor]

      I totally agree with you on the consumer having a choice and apparently making it. I also think that the future of movies is in digital downloads EXCEPT that those need to come down in price too. I recently bought a ps3 and tried their movie download service. What a mistake!! I ended up paying close to 8 bucks for movie! I don’t understand why those movies are so expensive if the movie is being transmitted digitally and there is no physical disc? I know that there are costs involved with maintaining a server to store all these movies for downloading but 8 bucks for a movie that I could have paid 1 for and worse yet was not very good is ridiculous! I think Redbox should look into starting an affordable digital download service. Then I think physical discs would go away. Think about it, why would all these Bluray players be integrating download/streaming services such as Netflix and others if they too didn’t believe that digital downloads is the future?

  2. Visitor [Join Now]
    Tee [visitor]

    Of course $8 is out of hand but by the same token $1 is way to low. The digital side basically is not playing the game of let’s see who can survive at a loss the longest. The studio get’s their split and there has to be enough in it to make a profit for the provider, a more realistic price would be $4.99 for 1st run movies.

    • Visitor [Join Now]
      Jake [visitor]

      Wow. Good thing you’re not running a video rental business. Hollywood Video bit the bullet with the belief that they could sustain $4 rentals…. and now you’re thinking that $5 is the best price?

      • Visitor [Join Now]
        tee [visitor]

        You people are incredible, what may I ask do you do for a living? You have no clue, you all want movies or goods for free or under $1. Would love to see how long you could survive if whoever patronizes your employer had as little appreciation for some profitability as you people. Maybe you would be ok with 1/2 of your pay because the public demands to pay less than your cost. You just don’t get it, these “kiosks” are not profitable period! All your demands that the prices have to stay were they have artificially been established are ridicules. Not to say that you should not take advantage of the prices and free movies the kiosks are trying to lure you in with, by all means eat it up. But to EXPECT and demand this $1 pricing is ludicrous and arrogant. They just put a BB kiosk in our town and I expect they will rent 100 – 200 movies per day, that averages out to $4500 a month. I assure you they will pay more than that per month for the movies they have to stock it with alone. I am not bashing the phenomenal deal that people are getting on this type of rental, just the complete ignorance and arrogance of what you demand to pay. Mark my words by next summer you will pay $2 per movie whether you like it or not and I can’t wait until your kid is begging you to watch Little Mermaid, Shrek, Barbie movies etc. and you can’t rent them because instead of supporting your local business (video store) you wanted the kiosk. I sincerely hope whatever it is you do for a living goes the same way for you!

        • Visitor [Join Now]
          tee [visitor]

          And BTW I do run a video store for over 19 years now, my movies rent for $2 a day for the 1st month, after that they go to $2 for 5 days. The first comment was with regard to digital downloads not physical rentals. Hollywood and BB rented movies for way to much $$ and their customer service was garbage. That’s why they failed. I really don’t give a damn what happens to this business, early next year I am starting a new profession and selling off my inventory by choice. I will look back at people like you and all the other cheap arrogant people that make your comments about what you will pay and what you wont pay and smile.

          • Visitor [Join Now]
            Sam H [visitor]

            Blockbuster and Hollywood stayed in business for so long despite their high prices and kids running the counter simply because they had a large number of New Releases and that’s what the consumer wants and they paid with no problem.
            Technology, NetFlix and the prices of DVDs, piracy and downloading forced giants to either close down or reduce the # of stores to less than half.
            Kiosks are here to stay and if they continue charging $1 or little more, then they will have the same fate others that do not calculate correctly their business models.
            Bricks and Motor stores can stay open since the average consumer wants to watch a movie right then and incorporate other services to offer the consumer, however demographics will play a big roll where would a Video Store stay profitable.

          • Visitor [Join Now]
            jwhoopi [visitor]

            Well. it seemed obvious that you were among those at the feeding trough created by the studios. Simply put, 99% of the the movies aren’t worth $1 apiece. There are exceptions, and I have always found it somewhat offensive that the Matrix costs the same amount as an indy low budget film anyway.

            We as a society have been creating an aristocracy featuring a royalty of overpaid actresses and actors, movie execs and producers. No one has ever said that these people were entitled to make millions of dollars for making a movie that takes a few weeks of their time, and it is time that they start making a more reasonable sum. I can assure you that the average ditch digger or farm laborer works 10x as hard as any actor in hollywood.
            If they make a movie that can sustain a higher price, they should and could make more. This way, they have an incentive to make better movies. Who here wouldn’t pay more to see Harry Potter of the Lord of the Rings than some “B” movie? As other countries, individuals, and small studios start making quality movies, Hollywood will lose its’ monopoly and prices will fall farther.

            Basically, I disagree with your premise that prices will rise. It is just as likely that prices will fall. How do you justify $2 for a download of a bad movie? No distribution costs, no physical media, no extra work to put out 5 movies than 5000. Supply is going to skyrocket with the new small and foreign creators and unlimited copies available through digital distribution, while demand for any particular movie will drop as a result of the increased choices available, creating a perfect storm for even lower prices.
            And I think this is a good thing. . .even if it means that the days of Billion dollar budget movies is over.

  3. Visitor [Join Now]
    Bob [visitor]

    To the contrary, $1 is still too high. A friend of mine uses netflix, but only when he’s out of school. During his downtimes he watches movies like crazy – ultimately watching 16 films a month for less than a dollar per film. If he needs to, he timeshifts the movie by ripping to his computer and send it back in for another item in queue.

    By comparison, Redbox is now too high at $1.25. $2 is out of the question.

    I have to say this too: even at these prices most movies disappoint and aren’t worth watching. I think the whole world is moving on beyond film. I don’t know what’s next, but movies have had their day in the sun.

  4. Member [Join Now]
    Bikemiles [bikemiles]

    I used to rent from a store that had “old release” and midweek for $1 per day. When they closed I went almost five years renting no movies. I believe Redbox came here to Minneapolis in 2005 or 2006. I would estimate that I now rent four to five Redbox movies per week. (civil service retirement).

    Hollywood always screws up the new technology by getting greedy. Definitely not my genre but the first major Hollywood release available as a digital download at the time of the DVD release was “Brokeback Mountain” for $20. The same release day you could buy it at Walmart for $11 or $12 or rent it at Blockbuster for $4 or Redbox for $1.

    No follow-up reports on digital download volume. Gosh I wonder why?

    If someone wants to study this research the online porn business models. They have had DIVX time use rentals for a few years. The time starts after the download when you first push “play”. The problem isn’t the technology. It is instead the cocaine using major studio executive who want to milk ever cent out on new technologies.

  5. Visitor [Join Now]
    will [visitor]

    I’d like to see Movie>Q work, but I don’t see how they make money with this business model. There’s an employee to pay, plus rent, utilities and inventory. Am I missing something?

    • Visitor [Join Now]
      rb [visitor]

      You know, after I thought about it, to save some costs, if Redbox went with this idea they could do it a little different. Instead of having the 10 or so kiosks inside a rented building/utilities/employees to man the kiosk stores all day, keep these groups of specific/unique kiosks lined on the outside of a specific local/state store. Say if they went with the store Target these kiosks would be lined on the outside in the front of the Target stores. The physical kiosks/cases/slots would be different than the normal Redbox kiosks in that you could only rent/return dvds from/to any of these outside Target kiosks. I think this ‘idea’ is worth a try as it could then offer a huge selection/variety of different/unique dvds that could be shuffled among the many Target (example) stores without the consumer having to pay a monthly subscription fee. As now, you could first look online if the Target store you’re going to or will be passing has the unique movie you want to rent.

      • Visitor [Join Now]
        Farva [visitor]

        I really don’t see many stores wanting 8 kiosks lined up outside their store front.

        • Visitor [Join Now]
          rb [visitor]

          Well,..the more kiosks outside a store the more potential business it brings to that store! How about outside the local library or post office? And since one of the Posts today is regarding Redbox moving slowly into the game rentals, how about one or two of these kiosks could be where Redbox only has/offers their game rentals in each community?