I feel sorry for the guys at my old Video Ezy store. It was a really nice family business and they went beyond the standard, soulless nerd at the counter laughing at you for not knowing the intricacies of the subplots of Ironman/Batman/Transformers, etc. These guys were great but they were on a sinking ship. Piracy has killed the video rental trade, which is really tragic for my old friends. Not sure where they're headed now, hopefully they've found some other way to earn some cash. That's business.
But enough of that sob story, the fact is they were selling something nobody wanted. To lay it out straight, here is why the DVD industry is doomed:
- You can get movies FOR FREE on the internet. Very hard to overcome this.
- You don't have to leave home to get these movies.
- Downloads aren't usually scratched, or out on hire by other users.
- You don't get fined (although you are supposed to) for downloading pirated movies.
- Store rental, site costs
- Disposal/sale of old titles
- License fees
- Staff costs
But wait!
What's that?
It's an Oovie?
What's an Oovie?
It's a new brand (Owned by Hoyts, the cinema people.) and a very nicely constructed brand I might add.
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| The new Oovie logo - very nice! |
It is the replacement for video stores. It is a vending machine for videos (see pic below). It really is a neat little system – the unit is full of probably 240 or so DVDs (including multiple copies of more popular titles, I presume) and you select one and swipe your credit card. $3 per night.
I hope you're asking yourself the question "why can't you just run off with the video forever after paying for just one night?" The answer is because they have a very clever payment system.
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| An Oovie Unit |
The payment system
They take your credit card details and charge you for the first night (single charge of $3). Then, when you return the video you are charged a second time, an extra three dollars for each additional night you've had the video. The interesting bit is that if you don't return it after 12 days it's yours to keep!
I think it's great because it means people no longer have to decide between hiring or buying the DVD. If it's for the kids then they can watch it a few times, get hooked on it and bang, you've bought it. Otherwise, it might be one that they hate and you can return it instead of paying the full amount. Great!
The reason they can implement a hiring/owning system like this is because the consumer cost of hiring and owning movies is so similar. Compare this to car rental: a car that is valued at $20,000 can be rented for about $80 per day. Under the Oovie rent or keep pricing you would be allowed to keep the car if you failed to return it after 250 days. A very unlikely scenario. So as clever as this little pricing deal is, at this stage I can't think of any other industry that it could be applied to. (Imagine this for consultants! If you clocked up $100k of fees you got to keep the consultant!)
Industry replacement
So Oovie has come along and replaced the dwindling DVD store industry. Almost overnight these vending machines have popped up everywhere. But I just can't tell if it's a good idea. There are approximately 100 of these units in my home town of Melbourne. Let us assume the vending machines cost approximately $5,000 each, then the outlay is half a million dollars.
Doing the sums
From my estimates (no data here, just my view based on how many titles are unavailable each time I go to use one) each unit would receive 12 rentals per day, with an average rental period of 4 days (another total guess).
This would mean daily revenue across the entire city of about $15,000. This really isn't a very exciting figure for an operation of this size. A problem with these vending machines is there is a diminishing demand situation. That is, the more popular the machine is, the less people will actually want to use it because the availability of DVDs goes right down. This is a dilemma for Oovie. Do they simply pump up the number of units? Perhaps, but if each one has a cost associated there may be an issue here. Increase the capacity of these units? That is probably a very expensive option.
The break even on these units would be somewhere in the range of 1000-1800 night's hire. Even in a highly optimistic estimation of demand that is a fairly unappealing prospect. I have not even factored in the cost of refilling the machines, processing payments, advertising etc. Counteracting this, however, is that they may be charging rental to the stores that have the vending machines. There is no doubt that, when placed in a supermarket, additional revenue for that supermarket is achieved. The cash exchange here is near impossible for an outsider to estimate.
A matter of perspective
My entire take on whether this is a good operation or not is really based on who has put it together. Hoyts is a massive organisation. They have developed a new venture with a pretty modest financial outcome. It isn't really a branding exercise because they understate the Hoyts brand in favour of the new Oovie brand.
It could be an attempt to dip the toe in the water of the home consumer market, in which case it does have some merit and final judgement would have to be reserved for when the next step of the plan is revealed.
However, for a large organisation this shows short-sightedness, as it is an investment in technology that is in its final day and the short term cash hit is not lucrative enough to justify the effort that has been put in.
Alternatively – if a friend of mine, an entrepreneur had come up with this idea and a way to earn between $15,000 - $20,000 per day I would offer congratulations. The difference being that this is a significant operation for a small scale operator who most likely thrives on short-term opportunities.
The Verdict
So yes, I appear to be fence sitting but my overall take on this is a thumbs down for Oovie. And make that two thumbs down for their auto-adding of your email address to their mailing list (which you need to provide in order to hire a video.)
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