Not all objects come to be in their places because of
similar forces. Intellectually, we know this. But our eyes
deceive us. If we see a lot of something, we assume it is
doing well. If we see many of the same things, we
assume that identical cause and effect relationships are
at play behind the scenes. Especially if those things are
man-made. We have been conditioned to intuitively
expect thorough uniformity. It is for this reason that
successful business opportunity scams use the same
machinery, sales pitches and products as legitimate
enterprises.  Just as a picture is worth a thousand
words, high visibility props can be deceptively used to
convince the unwary that completely different
businesses are actually the same.
And what could be more visible than a new item you see popping up at your local
supermarket? DVD rental machines have suddenly appeared at the ends of check out
counters from coast to coast. If you look, there’s almost always somebody either sliding money
into one of them or dropping off a rental into its honor slot. The selections are rather limited,
but they do seem to have a lot of traffic.

A recent nationwide television campaign assures us that the DVD rental business is exploding.
Our pitch man gleefully points out the sudden appearance of these vending machines at your
supermarket as the camera zooms in to show some mook slipping a fiver into its payment tray.
“Imagine you being on the receiving end of this windfall,” our man tells us. With the economy
being what it is, more people are staying home to watch movies than ever before. Now,
through a limited time offer, you too have the opportunity to get in on the ground floor of this
highly lucrative new industry.

Let’s run the numbers: It’s a $100.00 a month return on a $5000.00 investment. To the
pedestrian minded, this doesn’t sound all that hot. Phrased another way, it’s $1,200.00 clean
net profit off a business which only cost you $5,000.00 to start—better than dealing cocaine
only without the risks. But wait, there’s more! The $5000.00 start up includes the machine, its
initial stock and the placement of your machine in a retail store or some other high traffic area.
The monthly $100.00 is profit, over and above stocking fees, cash handling and other
incidentals. Moreover, this $100.00 is guaranteed for the first four months your machine is in
operation. At the absolute worst, you are going to wind up with a $400.00 profit off a $5000
investment—way higher than what you can get from a money market or bank account. You
would be an absolute fool not to take every last red cent you have and invest it in DVD rental
machines.

I’ve made up the above numbers, but the pitch is fairly much on track. It’s very unlikely they are
going to give you the cash figures up front--and the return I have given, as outstanding as it
might seem, is actually on the low end. In some permutations of the pitch what is being offered
is an interest in a batch of machines or a route. For various reasons this lessens the
psychological appeal since it decreases the perception that our potential entrepreneur owns
anything. Whether or not you ‘own’ anything is just one of the questions that you have to ask
when investigating a venture of this type. You also have to wonder if anything you are being
told is factually true. Is anyone actually making money in the DVD rental machine business?
It used to be that people would believe nearly any
claim they saw in print. Today, television is the new
mark of respectability, with “As Seen On TV” being a
frequently repeated maxim of credibility. Sadly, with
today’s advertising slump, both television and radio
stations are so desperate for even possibly paying
customers that they are willing to let in sponsors they
might have previously declined. Our general rule of
thumb is that no legitimate business opportunity or
investment scheme is ever mass marketed to the
public. None, never, ever.
Specifically, the DVD rental machine offer is a very old confidence game. THERE IS NO
LEGITIMATE VERSION OF THE SCHEME.
It’s a play on the Vacancy Scam, the end game of
which is to have outside investors fund the operator’s capital equipment expansion. This is
called a Vacancy Scam since the objective is to have the investors walk away from whatever
piece of machinery it is that they have purchased.

Let’s deal with the basics: It is not a $5000.00 investment, like a CD. It’s a vending machine. It
doesn’t turn back into $5000.00. It remains a vending machine—one who’s location you may
not even know. Even its environment, the ability it has to continue to function, is completely
beyond your control to impact. As ‘turn key’ as this business sounds, it’s actually very hairy.
Operating a slew of remotely located vending machines is an infrastructure and service
intensive business—so much so, that for the legitimate operator, the machines themselves are
almost afterthoughts.

Selling you an interest in something physical is key to the appeal of this scheme. All good
confidence schemes have a massive and complex deception which keeps the target focused
away from what is actually happening. In this case it’s the business itself, with its wonderful
return and actual ownership of a tangible thing. The reality of the scheme is that you give me
$5000.00 and I give you back between $400.00 and $1200.00. That’s what we call a rebate,
not a return on investment. You are still out $3800.00 and your chances of recouping it even
at the fashionable rate of $1200.00 per year are remote. Chances are this scheme and your
machine will stop functioning well before you have broken even. That’s if you are lucky.
In some variants, this scam is quite scalable. The
majority of these operators know that they will not
be at the game for long and are quite willing to
accelerate the process of fleecing you.
Remember that all of the money that ever
appears in this scheme is your money. The
action of our plot is to figure how much you have
to spend and then take you for all of it. Any extra
return you receive on your investment is merely
the result of the operator giving you back more of
your money. He’s doing this to entice you into
making another investment, buying another
machine.
This is a permutation of the ATM Scam and its predecessor the Trailer Scam. Normally these
schemes are residents of trade magazines or biz op publications. The ATM Scam and the Trailer
Scam are fairly much straight scams. In the ATM Scam, you are buying an ATM machine for a
quick mart and collecting a percentage off of every fee. In the Trailer Scam you are buying a
trailer for some hapless trucker. That it is DVD rentals simply broadens the appeal of the pretext.

The pretext is the story that the scam operator tells you. Obviously, since these machines are
popping up all over the place, this must be a going industry. If other people are making money at
it, why shouldn’t you. This is a reasonable appeal. And, as construed, it’s an affordable appeal,
which makes it doubly reasonable. Banded together, little investors should be able to compete
against the big guys. That’s the freaking American Way!

As I explained in a previous entry, all biz op scams contain a deadly flaw which keeps them from
being profitable as legitimate enterprises. In this case we have two flaws:

(1)        
That ship has sailed. This may have been a good business to go into at one time, but
conditions have changed which make it impossible to turn a real profit from the operation of the
enterprise.

(2)        There are hidden barriers to entry which make the profitable operation of the
business impossible.
The industry is dependant upon a commodity which can be monopolized.
No independent operator can obtain the commodity at a profitable price.

To handle the second part first, the DVD business has changed. Back in the 1970s, when pre-
recorded video tapes first appeared, movies were quite expensive. This made the idea of a
private lending library very attractive. Eventually the market blossomed to the point that 90% of
all movies seen are shown in the home. Today the standard life cycle of a movie has shortened.
Movies now take eighteen months from theatrical release, to cable play to being issued on CD for
mass sale.

The day the first DVD was issued marked the end of the movie rental business. Thanks to the
DVD, Hollywood now has a very cheap way to mass produce its product--
and thanks to the
advent of widespread piracy, every incentive to keep the cover price relatively cheap.
DVD titles
are issued in quantities far in excess of their actual market appeal to assure blanket coverage.
The majority of unsold DVDs are reclaimed and destroyed by the studios. A minority of
remaindered titles, especially those releases deemed direct to DVD (no theatrical release), are
given on speculation to the rental industry.

The remaindered titles movie rental industry is a huge business with no place for small operators.
Studios are giving the titles away for a percentage on each rental. The movies are essentially
free to the operator, unless they are not returned from rental. In that case, the rental operator is
compelled to charge near retail price for the unreturned copy. This is a trust business and it is
very tightly controlled. You do not have access to it. Neither does the person attempting to
peddle you a $5000 DVD rental machine.
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