The funding had bought growth, but not profitability. By 2008, the financial crisis was freezing VC wallets. Redbox, backed by McDonald’s real estate and Coinstar’s cash flow, dropped rental prices to $0.50 for a limited time. DVDPlay’s average revenue per kiosk fell from $1,100/month to $600/month.
Enter , a Seattle-based VC firm focused on digital media. In February 2006, DVDPlay closed a $4.5 million Series A . The term sheet was brutal: 8% preferred liquidation preference, a full ratchet anti-dilution clause, and a board seat for Voyager’s managing director. dvdplay funding
The funding was deployed to launch (a kiosk that also rented Blu-rays) and a doomed pilot program with 7-Eleven to put mini-kiosks (200 discs) on convenience store counters. Both failed. The 7-Eleven pilot cost $800,000 and generated $42,000 in revenue over six months. Act V: The Death Spiral – Convertible Notes and Fire Sales By early 2011, DVDPlay was burning $400,000 per month. Redbox’s market share hit 38% of all physical rentals. Netflix’s streaming service had 23 million subscribers. DVDPlay had no strategic buyer—Redbox didn’t want the technology, and Coinstar wasn’t interested. The funding had bought growth, but not profitability
DVDPlay’s story is not one of technology or consumer habit. It is a story of —of desperate rounds, convertible notes, and the brutal math that happens when you try to out-spend a giant selling dollar bills for ninety cents. This is the anatomy of a capital war. Act I: The Bootstrap Years (2002–2005) Long before the kiosk wars, DVDPlay was the side project of Mark and Sharon Phillips, two serial entrepreneurs who had made a small fortune in the Oregon wine distribution business. Their first machine—a clunky, beige box that held 300 discs and required a customer to swipe a credit card and manually return the DVD to a slot—was funded with $80,000 of their own savings. DVDPlay’s average revenue per kiosk fell from $1,100/month
The initial funding model was almost quaint: . Each machine cost $12,000 to build and $500 per month to service. If a kiosk pulled in $1,200 a month (roughly 40 rentals at $1.50 per night, plus late fees), Phillips plowed 90% of that back into building the next machine. By 2004, DVDPlay had 47 kiosks in Oregon and Washington. They were profitable, but tiny.