Strategic
Locations
CoViTek will implement the vending machines in key strategic locations after performing a detailed demo-geographical analysis of the city of Atlanta. Locations will initially be university campuses and later the urban areas of the city. Each machine will be located in areas where there is heavy human traffic.
Payment
Flexibility
Our pricing will be flexible depending on the amount of time the video is out. Since CoViTek is a system that is open 24 hours a day there are no late fees associated in our model. Our standard rental time for DVDs is “midnight of the following day” for a price between $2.50-$3.00.Each additional day will be between $1.50-$2.00. Video Cassettes will be $3.99 and if returned within 24 hours $1will be credited back. Each additional day will be $1.99. (Based on new releases)
Active Search
CoViTek will use an innovative application technology which actively searches for videos categorized by title, actor, new releases, type of movie (action, thriller, comedy), and most frequently rented movies.
Relative Competitive Factor
One of the most compelling aspects of the CoViTek model is its portability into untapped realms of video rental opportunities. This will provide the company with a critical advantage—the flexibility to transform itself in response to competitive challenges or to shifts in the video rental market environment. CoViTek’s flexibility will give downside protection to its owners by insuring that new, innovative means of generating cash flow can be realized. Future elements of CoViTek may include:
National
Expansion
Video rental opportunities in selected national markets such as: Washington D.C., Los Angeles, Miami and Huston.
Washington D.C: our second location has similar features to our first city of operation. It has a few large universities, widely used public transportation, and high pedestrian traffic. The schools we target will be American University, George Washington University, and Georgetown University. Our downtown locations will depend on areas where there is an intersection of the public transportation lines and high pedestrian traffic.
Data
Distribution
Future plans may include the sale of CoViTek’s proprietary online consumer data to the major video production companies.
Specialized
Machine
Content
Another growth opportunity for CoViTek in the future is the implementation of machines with customized video selection. The content of these machines will be select videos and DVDs targeted toward an audience based on specific themes. These machines will be placed in strategic locations based around their themes. Some possible “themed” machines may include: classic movie machines, foreign movie machines with Spanish subtitles or dubbing, and award-winning movie machines. The placement of these machines will require careful market analysis and planning, and therefore we plan to wait before implementation to gather enough data about the market and the purchasing patterns of our customers.
Investment Needs
Michel Khoury founder of CoViTek, has accumulated cash in excess of $10,000 for the development and the start-up cost of the company. CoViTek is now prepared to obtain financing through establishing a line of credit and implementing an equipment loan for its initial machine. It will later apply for loans as needed in order to buy more machines as it expands its operation. Using the machines and earnings as collateral CoViTek should have sufficient funds to obtain a line of credit that will secure its implementation of strategy. The initial stage of funding will be used to complete Web-site development, obtain one machines, invest in computer hardware and software, lease location space needed for the machines and market CoViTek during the first 12 months of operations. After 12 to 18 months of operation, CoViTek will require an infusion of an additional $15,000 to expand its brand image and increase its service offerings at an accelerated pace. Successful development and operation of CoViTek will allow it to be self-sufficient within approximately 9 to 12 months of initial operation. CoViTek will be a for-profit company incorporated in the state of Georgia.
Management team
Michel Khoury
Chief Executive
Officer Founder
While founding CoViTek, Michel Khoury is Assistant Managing Director at Bear, Stearns & Co. Inc. He is working hand in hand with the Managing Director of the company in order to implement a system of bringing foreign investment to the company. He has had significance experience with young ventures as he has participated in the creation of several companies nationally and internationally. Michel Khoury is also consultant to the CEO of Santege Capital Asset Management Group in New York City. Michel Khoury graduated in May of 2001 from Emory University with a Bachelor of Business administration with concentrations in Finance, Consulting, Venture Management and Marketing.
Andrea Hershatter
Advisor
Andrea Hershatter is the dean of the undergraduate student at the Goizueta Business School, Emory University where she teaches Entrepreneurship. She has strong experience in new venture management and will advise our company with their critical management issues.
CoViTek is a company, which will allocate video vending machines across selected cities in the United States. Consumers will be able to rent videos anytime all year round. Implementation of the machines will be highly accessible to consumers, an aspect that brick and mortar stores will struggle with in respect to our competition. The company’s unparallel technology application will allow CoViTek to function effectively and efficiently, ensuring that customers receive the best possible service and flexible payment options available in the video rental industry. CoViTek will rent videos to its target customers- the college student and urban population of the city of Atlanta.
CoViTek has organized its components to provide a fully integrated solution for its customers, allowing them to interact in a completely automated environment. The interconnection of the components described below will make CoViTek the premier efficient video rental service available. The customer can access the display screen with the swipe of his or her credit card. Navigating over an easy, customer-friendly interface, the customer is able to rent and return his favorite movies, quickly and in absolute privacy.
The Video
Dispenser Sizes
CoViTek differentiates itself from its competitor by the uniqueness of its product. We will initially offer 1 type of video dispenser then introduce 2 more. The biggest one will be able to store 698 videotapes or 1396 DVDs or a mix of videos and DVDs. Some other locations may need smaller machines, and in this case, there are two other types of machines available. One version of the machine stores 454 videotapes, and the smallest version stores 324 videotapes. The machine is approximately the same size as an ATM machine and has a 20 inch color screen.
Available models of video dispensers
The machine presented above has the 2x1 internal storage system, which means that for any space available for a videotape, two DVDs can be put. This machine could for example store 1428 DVDs or 714 videotapes.
Detailed
Operation
Once the customer inserts his or her credit card and types in his or her personal code, the CoViTek will welcome the user and invite him or her to proceed through a movie search. Several time-efficient ways of conducting a movie search will be offered. The user will be allowed to browse new releases, most demanded movies, and awarded movies. The user will also be able to search by the genre of movie: suspense, action, comedy, or romance. There will also be an alphabetical listing to search by either movie titles or the starring actors’ names. Once the user has chosen a movie, he has to press select in order for the movie to be released. A special compartment of the machine will open and release the movie. The machine will then thank the customer for using CoViTek and warn them that they have to return the videotape within a 30-day period or otherwise they will be charged a penalty fee of $80. Posted on the machine will also be a 1-800 customer service number for the customer to call to report if they receive a damaged or incorrect movie, so their account can be credited.
The credit card transaction will process through the centralized automated local area network (LAN) system located in the city we are located in. The system will run a credit check on the credit card and will secure an unbilled collateral amount of $80 for the videotape. The LAN will then identify the list of videos the customer has purchased previously and list them on the colored screen of the video machine. The system will then run Firefly (to be added one year from starting date). The customer will then be allowed to choose any of the videos the software has chosen for him from the menu. If he chooses not to go through Firefly’s process, he can then proceed to engage in a search for a different video.
Credit card slot CoViTek 20 inch screen
Machine
Architecture
As for the construction of the machine, it is based on a well-structured and user-friendly design. A large piece of iron forms and holds together the body of the machine. There are two main parts of the body. Body 1 is for the storage of the movies, and Body 2 is for the computerized system.
BASIC MODEL DESIGN AND DIMENSIONS:
Body 1 contains the compartments to store the movies and is made with the same material used in the shell of the videocassettes. This avoids the damage to the videocassettes and DVDs caused by friction. In addition, in order to have enough capacity and offer a better service, movies must be offered in every format. Moreover DVDs provide the advantage of increasing the storage capacity: 2 units of DVD can be placed in the height occupied by 1 VHS, that is to say, increasing the capacity in a progressive way by moving away from the VHS format.
Body 2 contains the monitors, computers, and credit card device. Therefore, all the heat sources and possible electromagnetic emissions remain isolated from the videotapes. The computers are designed in a precise way so that there is no user confusion. All the movies will have a barcode to track when the movie was rented and returned. Since everything is computerized and monitored, we will have access to all the user information needed, sorted by copy, title, or gender. This will allow us to compare the rental habits of our customers. We can also program our purchases and movie rotation, in a rational way in order to obtain maximum revenue.
With the combination of the two different bodies, CoViTek machines provide:
- The protection of the videotapes from the heat and the monitor’s radiation.
- A viewing height at the perfect position for the customer.
- Maximum visibility at any hour achieved by the placement of the monitor behind a dark, antireflective shade.
All the monitors will be designed with a slight inclination in order to guarantee both privacy and perfect visibility throughout the day. Also, the machines will be located in a way that 100 cm are left all around the machine in order to facilitate its maintenance.
The Billing
Process
Our pricing will be flexible depending on the amount of time the video is out. Our standard rental time for DVDs is “midnight of the following day” for a price between $2.50-$3.00.Each additional day will be between $1.50-$2.00. Video Cassettes will be $3.99 and if returned within 24 hours $1will be credited back. Each additional day will be $1.99. (Based on new releases) With this unique flexible payment plan we will gain an extreme competitive advantage realizing our quest to enter the market.
Profiling
Technology
CoViTek plans to use Firefly’s profiling technology. This technology will enable us to offer customized recommendations to our customers. It will profile our customers according to their rental habits and give them recommendations based on what other customers with similar tastes rented. This tool will enhance our customer relationship management which is oriented toward building a long term relationship with our customers
Technology
CoViTek will engage in a sharing technology developed by a third–party programming team (Vstar). The site architecture and database will be fully scaleable, allowing it to effectively manage CoViTek’s growth transactions and user traffic. CoViTek’s Chief Operating Officer will supervise the site’s construction. The company’s operating platform will use the Linux operating system, Apache servers and the Oracle 8i Enterprise Edition Database. CoViTek will create a website developed using a combination of HTML, PERL script and JAVA script. Both Linux and Apache are “open source” platforms, and both are faster and more stable than the combined Microsoft NT 4.0/IIS 4.0.
Staffing
Through the use of contacts, CoViTek will recruit talented college graduates in the fields of interactive technology and advertising. Specifically, CoViTek will hire students on the campuses the machines are on in order to help educated the student population on usage of the machines. The CEO and COO will be in charge of putting in the new movies, and taking out unpopular ones. As we expand our facilities and operation then the students who are delegated by us will do so accordingly. We will try not to have any unutilized videotape, as we will be very flexible to market demand, and we will transfer the movie from one machine to another that has a different type of demand.
In order to implement our machines on university campuses and in urban locations, we will need to negotiate with each specific location where we would like to place the machines.
University
Campuses
The university campuses will require us to negotiate a contract with them under which we would give them a percentage of our revenue or a fixed cost for property and phone line usage per month. The standard for a vending machine is 15%, but as our sales per machine will be significantly higher than any other type of vending machine, we will try to bring this number down to 10%. All the universities allow the presence of vending machines but we understand that certain university regulations might forbid us to implement a machine on campus. If this is the case we will try to find a location in a nearby area easily accessible to the students. We will also try to negotiate with universities to enable our machine to accept university cards. Almost two thirds of college students in Atlanta carry a credit card while spending an average of $1,213 per month, with up to 10% of expenditures on some form of entertainment, including video rentals.
City of Atlanta
Atlanta, the center of higher education in the South East United States with more than 15 colleges and universities, has a student population of over 77,117. Major universities include Emory University, University of Georgia, Georgia Institute of Technology, Georgia State University, Kennesaw State University, and Oglethorpe University, which are all situated strategically in and around Atlanta. With an adult population of around 4,536,323, Atlanta is a key location that CoViTek should target. The average household income is between $50,000 – $74,999 which compromises 21.3% of the total population of the city. Students age 18-34 have an income that is between $30,000 - $74,999 which compromises around 113,362 households. Atlanta’s congested areas include Clifton Rd., College Park, UGA Campuses, and the Midtown area.
Market Data
Credit Card Usage:
Over 3 million people in Atlanta own and use credit cards. 84% of the population has a Bank Card, 29% have gas/department store credit cards, and 18.7% of the population has at least some kind of travel/entertainment credit cards. Only 200,255 of the population of the city do not carry credit cards.
With 5.8 million students enrolled in 4-year colleges around the United States, they have an aggregate spending power of more than $90 billion. $30 billion of the spending is from personal earning and parents. Almost two thirds of college students in Boston carry a credit card while spending an average of $1,213 per month, with up to 10% of expenditures on some form of entertainment, including video rentals.
CoViTek will have to hire a market research firm to indicate (in each city):
1. Average spending dollar per household on video rentals a year
2. Total number of students who rent videos (how many per year)
3. Total students with the relevant purchasing power
4. Entrepreneurial activity in and around the city
5. An overall business climate, which includes: consideration of transportation, banking, professional services, economic base, and growth trends
Credit card usage/ year in the city of Atlanta
Areas of
Volume
We will also need to negotiate with all kind of locations that drive a lot of traffic such as stores, buildings, and large apartment complexes. We are interested in any strategic location that is frequented by a high volume of pedestrians. We would also have to negotiate with them the same terms of revenue sharing agreements as with the universities. Nevertheless, we see a very interesting opportunity in negotiating alliances with retail chains that occupy strategic locations such as Starbucks. We would offer such companies with profit sharing plans in CoViTek, and in return, we would get the right to implement a machine outside their stores. This type of agreement would enable us to gain several key locations, saving us time and money.
Metro
Stations
The “T” in Boston is the most frequently used method of transportation, which accounts for more than 695,000 passengers a day. Other forms of transportation include buses and taxis. A large percentage of professionals use the “T” every day for commuting back and forth from work.
Marketing……………………………………………………………………………………………
CoViTek’s advertising plan will be based around the individual cities we choose to place machines in. Our first city, Atlanta, was selected because the CEO and COO live and work there. Advertising on college campuses can be very inexpensive, and we will focus our efforts there. At least one machine will be on each of the following schools’ campuses: Georgia State University, UGA, and Emory University. Our advertising methods for all of our campus locations will be similar. We will target residence halls and popular campus locations with posters and fliers posted on campus bulletin boards, distributed in residence halls, and advertisements in the school’s newspaper. Campus advertising should not cost more than $1,000 per school, most likely less, depending on the school’s population.
We will also hire a full-service advertising agency, but not until we expand to other cities. We want to see how much awareness we can achieve in Atlanta without an agency campaign. Once we expand to other cities, we will need an agency to create a consistent and strategic brand image for CoViTek. All of our advertising will stress our convenience and value, to deliver a clear brand image in the consumer’s mind.
In addition to our marketing efforts, CoViTek will employ a variety of other marketing strategies:
Viral
Marketing
CoViTek will aggressively target and distribute e-mails to potential consumers featuring promotional deals, newly released videos, as well as a direct link to CoViTek’s web page.
Public
Relation
CoViTek will use a top New Media public relations firms to promote the company and secure write-ups in prominent Internet/Technology and business magazines.
Online
Advertising
CoViTek will place online banner advertisements on popular B2C web sites that our profile user would frequent.
Feedback
We will encourage our customer to give us feedback on what they would like to see in our machines through our and offer them incentives to do so such as free rental or coupons. While our selection will be smaller than our brick and mortar competitor, our market will be more targeted. Rather than having everything, we are striving to provide our market with the exact products that meet their needs. Thus this narrower selection can be seen as an advantage for us as it demands that our company remains focused on our customers and our competitors, to ensure that we are providing our customers with what they want to see.
We will also encourage our customers to give us feedback on what they would like to see in our machines. This will be done through our website by offering incentives and free rental coupons.
Distribution
Michel Khoury and Sina Mouloud will be in charge of the maintenance of up to ten machines at one point in time. We will hire students as our operation expands onto more universities across the US.
Suppliers……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Video
Vending
North American
VVNA is the creator and market leader in the production of video rental machines. Its system is exclusive in its combination of both VHS and DVD formats. VVNA has been manufacturing video-dispensing machines since the early ‘90s. VVNA machines are the most innovative and modernized in the market. To maintain the maximum market value of their products, VVNA manufactures sturdy, reliable machines, made to last many years and capable of providing thousands of rentals without requiring machine alteration.
VVNA machines have been designed using a unique, patented technology proven to provide the market's most reliable and safe equipment, while reducing the level of maintenance intervention to a minimum. A central computer is used to remotely manage all the dispensers via DSL networks.
Personalization
of the Video
Dispensers
VVNA, the manufacturer of the video vending machines is willing to customize the design of the machine for us. Therefore we need to develop a design for our machine that will efficiently promote our company. The design and the logo must attract attention while being contemporary and functional. We want the machine to catch the attention of pedestrians who walk by the machine in order to drive more traffic to it.
Production
Companies
Ninety percent of our videotapes will come from one of the six major production companies (Buena Vista, Warner Bros., Universal, Fox, Paramount, or Columbia-Tri-Star). The power of these suppliers is very high, as they hold the rights of the movies they produce. We will be working with Video Bicicling. They will give us a competitive price on Videos and DVD. Our experience has shown us that it is better to own a rentable video in order to use it for resale after complete amortization. This system will allow us to sell the movies that are not in high demand after using their complete value in rental time.
CoViTek may consider the selling of consumer information gathered from their database technology to research companies primarily dealing with entertainment studies.
Data Collection
CoViTek can collect information on users and their rental behavior and target users with certain videos accordingly. Information travels both ways over the network: CoViTek gathers information on users while they choose and select their videos through our system simultaneously.
Blockbuster, Inc.
Blockbuster, Inc. is a retailer for both the rental and purchase of home videocassettes, DVDs, and video games. Blockbuster has about 7,200 stores in the United States and its territories and 26 other countries as of December 31, 1999. The company operates primarily under the Blockbuster brand, which according to the Gallup Organization, achieves nearly 100% recognition with active movie renters in the United States. In 1999 Blockbuster rented over 1 billion videos in the United States.
Beginning in the fourth quarter of 1999, the company began operating in two segments: home video/DVD/video game rentals and sales (the video segment); and new technologies. Through its video segment, the company operates 5,879 video stores and its franchisees and/or joint ventures operate 1,274 video stores located throughout the United States, its territories and 26 other countries. Through its new technologies segment, the company operates its Internet site, Blockbuster.com, and its newly formed division, Digital Networks, which is responsible for exploring various alternative forms of electronic entertainment delivery including video on demand.
The company designs its stores to provide a recognizable distinctive format offering an extensive selection of products in an attractive design aimed at capturing the magic of the movies. The internal layout of the company’s stores allows its customers to easily distinguish new video releases, Blockbuster Favorites, DVDs, video games, and other products. Each domestic store typically contains a perimeter wall, an internal area and a checkout area.
Blockbuster’s U.S company-operated stores generally operate under substantially similar hours of operation. Domestic stores are generally open 365 days a year, with daily hours generally from 10:00 a.m. to 12:00 midnight. The hours of operation for franchised stores vary widely depending on the franchise. At December 31, 1999, in the United States and its territories, the company operated 3,970 stores and its franchisees operated 823 stores.
The company believes that the growth of the Internet and the increasing availability of broadband distribution present significant opportunities for the company to capitalize on emerging home entertainment technologies. In particular, the company believes it is well positioned to leverage its strong brand name, existing infrastructure, and extensive expertise in video/entertainment news and information; information about movies; integrated promotions between the company’s in-store and online businesses; and suggestions of movies based upon a customer’s evaluation of selected films.
During 2000, the company intends to integrate its online capabilities with its store systems, which will allow consumers to search a store’s inventory, reserve a title and pre-pay through its site. As part of its new technologies segment, the company also has established a digital network group, through which it is exploring emerging forms of electronic entertainment delivery, including, among subscription video-on-demand and games-on-demand.
Blockbuster competitive advantages
- 70% of the American population is 10 minutes away from a Blockbuster: with more than 6000 stores in the US, Blockbuster offers very strong market coverage.
- Blockbuster has a very strong brand image with 100% brand recognition.
- Blockbuster can offer a wide selection of videos due to the size of their stores.
Blockbuster disadvantages
- General and administrative expenses of $2 billion account for almost 50% of the company’s revenue.
- Blockbuster employs an average of 6 people per store in order to remain open twelve hours a day.
- Each new physical store location represents a significant investment for the company. In 1999 Blockbuster opened 596 stores for an investment of $283 million, which represents an average investment of $500,000.
The chart one shows us the video renting process for a Blockbuster customer. Customer A, B and C are all going to rent a movie. The first part of this process is to access the nearest Blockbuster location. To do so they will in most of the cases need to drive. Once they reach the nearby Blockbuster they will need to find a movie they would enjoy. This search is traditionally time consuming. Once the movie is chosen, they will need to check out and pay a flat fee of $3.69 for 3 days. To return the video the customer will have to drive to the Video store once again.
Chart number 2 shows the same process for a CoViTek. Customer A, B and C get to a CoViTek vending machine, which will be in most of the cases within a walking distance. Thanks to our search engine, their movie search will be time efficient. Once the movie is chosen they will be able to check out in a few seconds. If the three customers intend to rent a movie for different period of time, they will be charged a different amount of money because CoViTek offers a
flexible payment system. Returning the movie will also be time-saving, as they will just have to walk back to our machine.
Hollywood Video
Hollywood entertainment owns and operates 1,615 Hollywood Video retail superstores in 44 states, as of December 31, 1999, and is the second largest retailer of rentable videocassettes, DVDs and video games in the United States. The company’s customer transaction database contains information on about 27 million U.S. member accounts. The company added 355 stores in 1999, and intends to add approximately 200 to 250 stores in each of 2000 and 2001.
In October 1998, the company acquired Reel.com, Inc., and online destination for the film-related content and commerce. In conjunction with this acquisition, the company began implementing a strategy to electronically deliver entertainment products directly into the homes of the company’s customers via the Internet. Reel.com offers approximately 50,000 titles on videocassette and DVDs for sale. The website offers proprietary information about movies, including descriptions, ratings, critics’ reviews, recommendations, and various entertainment links.
The company’s primary source of revenues is in the rental of videocassettes, DVDs and video games. The company’s superstores typically carry approximately 8,000 movies and titles and 15,000 videocassettes, DVDs and video games. The company is committed to offering more copies of popular new releases than its competitors. The company also offers new and previously viewed videos for sale.
The company’s primary competition comes from Blockbuster stores. The company also competes with cable, satellite, and pay-per-view television systems, in which subscribers pay a fee to see a movie selected by the subscriber.
In June of 2000, Hollywood Entertainment closed down the e-commerce business at Reel.com. Hollywood entered into an agreement with buy.com, a multi category Internet superstore, to provide e-commerce services for visitors to the Reel.com site.
Hollywood Video has very similar strengths and weaknesses to Blockbuster.
KOZMO.com
Kozmo.com is a new entrant in the video rental industry, the company was launched in 1997 and currently operates in 11 major American cities: Atlanta, Boston, Chicago, Houston, Los Angeles, Portland, San Diego, San Francisco, Seattle, Washington D.C., and New York. Kozmo.com has revolutionized the industry by combining the promise of the Internet with the convenience of ‘e-mediate’ delivery. Kozmo delivers any movie to their customer’s house in less than one hour, for a rental period of 3 days (versus 2 days for Blockbuster new releases) at a price of $3.99 (versus $3.69 for Blockbuster). In every city it has entered Kozmo has gained significant market share thanks to a very aggressive marketing strategy.
Kozmo.com competitive advantages
- Kozmo.com is revolutionary in terms of customer service with a free delivery service in under an hour.
- Kozmo has a 3-day rental period for new releases.
- Kozmo delivers until 1 a.m. every night.
Kozmo.com disadvantages
- Very high operating expenses due to delivery related cost.
- Weak market coverage: delivers only in certain cities and only in some parts of these cities.
- Smaller video selection.
- Experience frequent denial of system of their website.