DVDs by post new big thing

By ADAM GIFFORD

In response to an electronic order from a website, a DVD disc is plucked by mechanical hands from where it rests among thousands of other movie titles.

It is matched with a label, put into a specially designed plastic case, dropped into a pre-printed envelope and posted for less than the cost of a normal envelope.

Welcome to a new sub-industry that seems to have emerged overnight - internet DVD rentals.

In the United States, Netflix has become US Mail's largest customer as consumers turn away from shops and peruse the far greater range an online service can offer.

Sky Television told analysts last month the online DVD business was one it wanted to get into here, to counter the delays between when DVDs hit the market and when it had rights to screen them to its pay TV customers.

But Sky could be too late - three companies are already renting DVDs over the web to New Zealand customers, and they could become well entrenched by the time the pay TV operator gets its service going.

The marketing battle in coming months is likely to be fought between Movieshack, which is spending up large on billboard advertising, and Fatso, which has some serious money and serious systems behind it.

A third firm, DVD Unlimited, a family-owned company operating out of Nelson, offers all you can eat for $35 a month.

Both Fatso and Movieshack start with a plan offering two DVDs at a time for $29.95 a month, $39.95 for three, postage free and no late fees.

Investors in Fatso, through its parent company Westside Media, include Warehouse founder Stephen Tindall, TV3 boss Brent Impey, Richard Dinsbury from Kiwi Income Property Trust and former Montana Wines chief executive Brian Mogridge, who is chairman. The largest shareholder is chief executive Robert Berman, who has spent more than a year putting the business together.

"It needs to be seriously well-funded to produce a good service," said Berman.

He said the custom-designed mailer gives Fatso an edge, because it can get next-day delivery at regular postage rates. Berman's aware of the competition, so much so he would not let the Herald photograph the production line.

A big investment has also been made in stock - Fatso carries 7000 titles, with multiple copies of recent releases.

Usage patterns are already starting to reflect the Netflix model, with 70 per cent of orders being for older movies. Traditional video rental stores tend to do 70 per cent of business from new releases.

While Berman's background is in IT consultancy, software development and property management, he elected to use software and back end logistics systems from Australian firm Riversdale under licence. It is also used across the Tasman by Telstra subsidiary Fetchmemovies and in Britain by Video Island.

"This business isn't about software development. We looked at developing something ourselves, but we think this is the best one which has been proven commercially," Berman said.

Movieshack directors James and Nick MacAvoy took the opposite approach, building their own back end systems.

"We think it gives us our edge. It means we are able to add features we want, such as child protection systems," said James MacAvoy.

He said the company was funded by family money.

Movieshack sends out its DVDs in a plastic case at the 90c postage rate, meaning it is already 45 cents behind Fatso in costs.

But in the US, yet another model is developing that may give the Video Ezy chains of this world pause for thought. MoviebankUSA is set to open a fully-automated store in Manhattan, serving a collection of 5000 DVDs, tapes and video games as an ATM dispenses cash.

There will be no "video guy" on hand to take your money or search the database for you. Price (US$2.50 for 24 hours) is expected to drive demand.

How the services compare:

Fatso - From $40 a month, no late fees, three DVDs allowed out at one time ($30 for two DVDs, $60 for five DVDs, $90 for eight DVDs), no postage charges, delivery both ways in one to three days, 7000 titles to choose from.


Movie Shack - From $30 per month, no late fees, two DVDs allowed out at once ($40 for three, $60 for six), no postage charges, delivery both ways in one to three days, "thousands of titles".

DVD Unlimited - $35 a month, no late fees, three DVDs allowed out at one time, no postage charges.

* All the services offer free two-week trials.