DVD Station, Powering Long Tail Distribution

by Davis Freeberg, Contributing Writer

About three weeks ago, I sat down with Bill Fischer the co-founder of DVD Station and talked about an exciting new program that they are collecting films for now and will roll out to consumers this Fall.

The program is called Sub 5 and DVD Station is offering artists and producers the ability to upload their films and have them distributed at DVD Station locations. Sub 5 is a program that looks for artists who haven’t struck gold at the box office. Basically, any film that has grossed less then $5 million at the domestic box office, qualifies for consideration. Using this criteria, hypothetical films could include things like King Kong Lives and Swingers . Box Office Mojo is a great place where you can see how much your favorite movies grossed at the box office.

It’s pretty simple for content producers to get started, they simply go to DVDstation.com/sub5 and upload their video. Once DVD Station gets the video, they review it and send back the appropriate paperwork. All that the artist has to do is submit the video and sign the paperwork. In return, DVD station will burn and distribute your film to their customers and will basically split the profit with you 50/50 — a pretty fair deal, considering what an independent producer might get from a major studio.

DVD Station really wants to partner with the independent community and allow long tail film content to flourish. By making it really easy for content providers to produce and distribute DVDs, they are essentially becoming an indie label, minus the promotions. According to Fischer, “our belief is that there is a lot of demand, these small indie titles have never been available to a large audience. We have absolutely no idea how large the potential market is.”

Because long tail demand can be a bit unpredictable, DVD Station places a multi-terrabyte server into every location where they rent DVDs. Using this server burning technology it takes about 30 seconds to burn a DVD for a store. While DVD Station is not planning on introducing this as a consumer “on demand” feature, they do use this technology to better manage their store inventory.

You never know how this technology could be used in the future. Personally I would love to see them offer this technology directly to the consumer. You could have a program where for an extra two bucks you could have any movie on file burned and immediately made available. Of course the problem with this strategy is that the studios will never go for it. Typically studios prefer to receive big upfront revenue checks from the rental market providers vs. the revenue sharing structure that they had in place when VHS was back in style.

Because long tail producers tend to benefit more from what their films do after they build a buzz, small unknown producers might be much more open to allowing a company like DVD Station to fulfil as much demand as they can handle with their burning technology. While Fischer wouldn’t commit to a “guarantee” that you would always be able to get a copy of your favorite movie, this program will allow DVD Station to be very nimble as demand increases for the great micro content that they are getting.

Currently, you can find 15 DVD Station stores in 7 states. Their kiosks tend to be located around colleges, coffee houses, commuter hubs, and they even have a location at a gym in San Francisco. DVD Station will also be launching a location shortly in San Francisco at the corner of Filbert and Fillmore in the Marina district.

The kiosks are pretty simple to figure out as the company has focused on a “semi-automated approach to fulfillment at the customer level.” By having a clerk present, they’ve found that they get “a much higher traffic rate.” It seems strange to me that as we quickly become a more digital society that people would still prefer working with humans over machines. Personally, I always head for the self check out line at Albertson’s (or better yet get it delivered from Safeway).

Although actual vending machines would tend to be a more passive way to rent movies than DVD Station rents today, Fischer did say that he thought that the vending machine concept was “interesting” and that they are planning on “issuing a vending solution in the fourth quarter of this year.” If vending proves to be popular, it would make it even easier for grocery stores and coffee houses to implement. Vending machines could also make it easier for them to distribute long tail content that they are collecting to the mass markets and not just the hip indie college crowds.

With the entire DVD industry acting a little confused right now, I asked Bill where he saw the competition stacking up against them. DVD Station’s biggest direct competitor is Moviebank. They offer a similar service and are in the process of unrolling 3,000 kiosks. In addition to Moviebank, they also face competition from video on demand, dvd by mail and of course traditional retailers. While Fischer acknowleged that it’s difficult to tell where the online rental market will settle, his best guess is that it will eventually capture about 20% of the DVD rental market. If he’s right this leaves $40 billion dollars still up for grabs. “If we were Blockbuster we wouldn’t like that because traditional retailers have very high fixed costs, which means that their operating margins tend to be pretty low. Blockbuster traditionally has had a 6% operating margin, so if all of a sudden you see 20% of your business migrate away, your stores start running at a loss,” said Fischer. As a smaller cost newer player DVD Station might have much less to lose.

When I asked Bill about where he saw HDDvd fitting into the picture, he said that “we merchandise our titles around the title. A traditional retailer has to decide if they are going to provide shelf space for Blue Ray Dvd or HDDvd.” Because all of DVD Station’s media exists in a digital format, they can be format agnostic and still help connect consumers to great media irrespective of changing formats going forward.

They also have longer term plans to launch a download service for the Play Station Portable as well as Windows Mobile-based Devices as additional platforms.

Overall I was very impressed with DVD Station and would recommend that anyone who lives near one of there stores check it out. My only complaint was that you can’t get them everywhere. If it was as easy to get to a DVD station as it is to get an ATM, then I think internet mail order would become pretty irrelevant. I could really see this service being an asset not just to DVD station, but also to supermarkets, coffee houses, and to any other business that wants to promote repeat traffic. I remember when I used to use Kozmo.com for DVD rentals (check them out on the Way Back Machine). I would return DVDs to Starbucks and I can’t tell you how many times that I ended up buying something when I would have normally walked right past. Hopefully, they’ll partner up with Starbucks or even better, Carl’s Jr., so that more people will be able to check out all the grea
t “long tail” content that is out there.