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)