GameZnFlix On Track With 2006 Goals, Including New Distribution Centers

Pres. Donald Gallent said the company already started shipping games and movies for subscribers in the mid-Atlantic U.S. states out of its new distribution facility in Gaithersburg, Md., and an Orlando, Fla., facility will be up and running “in the next 3 to 4 weeks” to serve the lower southeast region of the U.S. The Fla. location increased the company’s total number of U.S. facilities to 6. The others are in Mass., Ky., Colo. and Cal.

GameZnFlix said in March it planned to open the Md. facility to replace the one it had originally planned to open in the region via the purchase of DVDAvenue, an online DVD rental service serving the D.C. area. GameZnFlix CEO John Fleming said at the time his company decided to cancel the DVDAvenue acquisition after deciding “there was not a good fit between the 2 companies.” The company announced early this month it negotiated a lease agreement for the Fla. facility although it didn’t announce what city it was in at the time (CED May 9 p8). GameZnFlix said then it also planned to continue opening new facilities in northern Cal., Tex. and Wash., as well as other locations through 2006. Gallent said during the investor conference the company plans to open locations in Sacramento, Dallas/Ft. Worth, Seattle, Chicago and “potentially one or 2 additional areas” by the holiday season. He said the goal was to have 8-10 distribution centers to cover the continental U.S. and provide all members with 48-hour shipments. Gallent said the company was getting better at reaching that goal and predicted that by the time it opens the new distribution facilities this holiday season it will be able to guarantee 48-hour delivery time in all those markets.

Gallent said the company was able to ship Xbox 360 games 7 days ahead of the console’s launch at retail late last year. Therefore, “our members had the games in hand when they went to pick up their consoles” at stores,” he said, adding “we hope that will be the same case” later this year, when the Nintendo Wii and Sony PS3 launch. The company noted its selection of both games and movies gave it an advantage over rivals including Netflix, which offers only DVDs now -- especially with consumers having the ability to play games and high definition movies on the 360 and PS3. Gallent said “we will be gearing up” for the PS3 and Wii launches and “if they are anything like what we saw out of Xbox 360 last holiday we will have day one inventory on those and they will be great platforms for us as far as an investment, as well as opportunities for us to continue to gain members by having that day one inventory and committing to new platforms.”

GameZnFlix expects to have more than 150 Xbox 360 game titles in stock by the holiday season, Gallent said. Although neither Nintendo nor Sony announced how many games will be available on day one of their systems’ launches, Gallent said he expects there will be 20-30 PS3 games available on launch Nov. 17 in the U.S. and 15-20 Wii launch titles. Third-party game publishers were hesitant at E3 to tell Consumer Electronics Daily if their launch games would actually be available on day one of the systems’ launches or during the “launch window,” so it was unclear Fri. whose information those estimates were based on. Gallent told us only “those are the estimates we were told last week at E3” without specifying who provided that information. Nintendo had also yet to announce a specific Wii launch date.

Although GameZnFlix is now focused on delivery of games and movies via the mail, Gallent said “we all know” digital distribution of content is “on the horizon.” Therefore, he said, the company is already planning to be able to offer digital distribution as well. “We are looking towards what the distribution and infrastructure network needs to be and, more importantly, what we have to do to obtain the content rights in order to do that,” he told investors. Gallent said the company’s goal is to be a digital download “leader” and it expects that “will become a mainstream component of what we are doing” in 2-5 years.

GameZnFlix is also weighing an entry into content for handheld systems as well as cellphone/wireless content delivery, Gallent said, telling analysts “we are keeping an eye on all the different avenues” for delivering content to its members, including via iPods. He later said the company is “looking at the audio book rental” arena, noting it wouldn’t be difficult to add that content to its selection. But he said the company wasn’t yet sure if it was something its customers wanted.

The company is also “still investigating a possible expansion and acquisitions in English-speaking countries as well as other countries in Europe,” said Gallent, who offered no specifics on those fronts.

Gallent said his firm already had HD DVD movies in stock and started to ship them to members after that format’s recent launch. He added “we hope within the next 30 to 60 days” Blu-ray movies will become available also.

The company also plans to offer “a full slate of TV series in multi-disc [DVD] sets online” later in 2006, said Gallent, admitting that was “one of the areas that we have been lacking” in to date. He said TV series members will be able to rent will include Friends, Seinfeld, The Sopranos and 24.

GameZnFlix also has aggressive marketing plans for the rest of this year. The company already “had success” via promotions with retailers online and off, Gallent said. The company announced in March that it signed a co-marketing deal with Circuit City calling for the latter to start offering GameZnFlix’s online service to consumers at all its U.S. superstores as well as at the Circuit website (CED March 28 p6) after a test conducted late last year. Fleming told investors the deal was working out “fine” but declined to provide additional details. The company didn’t specify other retailers it is looking to offer deals with. Asked if the company was in talks with Target as online rumors had suggested, Fleming declined to comment.

The firm is also “looking at [CE] manufacturers” for similar cross-marketing deals as well, Gallent said, adding it would like to have coupons and other offers included inside the boxes of electronic items consumers buy via retailers. GameZnFlix is also looking into possible cross- marketing deals with other subscription-based companies with target audiences similar to his, as well as possible revenue- sharing deals with non-profit companies looking to raise funds through the sale of gift cards or other products, Gallent said. He added the company also continues to have an online promotional presence, and was getting “millions and millions of ad impressions” on a monthly basis via its online program.

GameZnFlix also already started running TV ads in Mass. after opening a distribution center there, and plans to start running TV ads in the metro Washington area “in the next couple of weeks” in conjunction with the opening of the Md. distribution facility, Gallent said. He added the company plans to run the same kind of TV ads after opening distribution centers in new cities as well.

Fleming said his company’s revenue increased to $676,000 in the first quarter, from $403,000 a year ago, while the company is now “in great shape” in terms of funding. But he declined to say how many subscribers the company had now. Fleming said only membership “continues to grow.”

The company is also “not [concerned] at this time” about Netflix possibly suing it for patent infringement as its online rival recently did to Blockbuster (CED April 6 p4), Fleming said, telling analysts GameZnFlix’s business model is different from its rivals, its technology is different and it uses different software. Fleming also said his company doesn’t engage in the practice of “throttling” - the act of giving selection and shipping priority to subscribers who rent fewer discs each month, which Netflix was sued over by disgruntled subscribers in 2004. “We do not throttle, we have never throttled [and] we will never throttle,” Fleming said. - Jeff Berman