To go back to the first point, it is a business in its death throws. Hollywood Video has already gone
under and Blockbuster is closing stores left and right. Netflix is operating the only sustainable version
of the business, but they are cut into the remaindering system.*1 The people who are offering videos
at your supermarket are also cut in somewhat. If the point of sale rental box approach at stores
proves to be profitable, it will only be after several failed tries. Many similar vending schemes have
been tried in the past and all have gone belly up.
Finally, the DVD as a format is near term obsolete. The technology exists today to pump into each
cable-ready home every movie ever made, on demand, at any time the consumer wants it. Once in
your home you are free to copy the movie for your own consumption, pass it on to friends, use it as a
coaster or whatever. In a perfect world, the movie studios would already have this system up and
running and your movies would be coming direct from computer banks housed at Disney, Universal,
Fox or some holding corporation. In our imperfect world cable companies are buying movie studios.
Eventually the cable companies and movie studios which haven’t outright merged will come up with an
equitable split and—poof—overnight what remains of the rental market will vanish utterly. It’s not a
question of ‘if’ but ‘when’. The only future that the DVD may have is as a back catalog gift item—
literally selling itself through selling its packaging. Giving a download for Christmas still has limited
In short, the pretext, that someone is making a mint on this enterprise and so should you, is both
misleading and not disclosing of the true nature of this business. You cannot get in and there is some
question as to whether all that much money is being made at it (and for how long.) Given that the
majority of the supermarket machines are charging a whopping ONE DOLLAR for their rentals, the
margin on this business is paper thin to begin with, even when done in scale.
You, of course, are not doing it in scale. You are buying one machine. And every machine you
have ever seen has a line of people walking up to it, so you are still enthusiastic. So you part
with the $5000.00. What do you get for this?
|Allow me to give you the best possible example first:
Your machine is the (fictional) high end Videodrome 2100, which stocks 21 relatively recent releases.
It’s all action and comedies and chick flicks—stuff that moves. We have placed your machine in Rick
Svoboda’s Polish Cheese and Florist shop, a store in an average strip mall which seems to have
pretty good foot traffic. Your machine is right by the door, so people can take a look at its marvelous
offerings right before they go out. Rick himself has agreed to stock your machine with new titles as
they arrive via UPS. For this service (plus his electric and floor space), Rick gets a dollar off of every
sale. Your machine is nicely equipped with a camera so that you can watch the fun goings on at Rick’s
shop over the internet if you want. Each and every sale is sent to your computer live and you can
count the dough as it rolls the heck on in. For extra fun, we have given your machine an ATM/Credit
Card acceptance slot. Now you never have to turn down a rental just because the customer is short of
cash. Moreover, you can immediately charge the customer the full retail price if he fails to return
Turner & Hooch within the prescribed number of days. Congratulations, you are now an entertainment
This more or less is what you thought you signed up for. It’s not exactly the same as the machine at
the supermarket, but the confidence operator never really said that it would be. You don’t rent for a
dollar, you rent for three dollars. Of those three dollars, one goes to Rick, one goes to the
‘organization’ (for sending out disks and paying sales taxes and other fees) and one dollar goes to
you as profit. If the confidence operator is lazy, this is really all he wants. You have purchased his
capital equipment for him and Rick is allowing it to sit in his place of business. If it works, great. If it
doesn’t work, Rick’s out his time and space and you are out $5000.00 on a remotely located electric
In this case, it is very similar to the strategy Subway and Starbucks used. Let any fool who wants to
buy in. We will put them in as many places as will take them. Most of them will fail. Some of them will
work. And all of this expansion is funded on someone else’s dime.
This is fairly Darwinian, even as it stands. Unfortunately, this is not the way this scam typically pans
out. Before disclosing the entire tale of woe you probably have in store for you, allow me to make you
a less glamorous but more reasonable offer…
|This time the machine in the ValueMax 2100, a coin operated high volume carpet and bedspread
washing machine. Many Laundromat operators cannot afford to install such a fine machine on their
premises, however I have a list of hundreds of them who would allow you to place one within their
establishment at no cost. They want the machine in their quick wash because it is a draw. People who
show up with carpets and bedding are also likely to bring in other items. For a mere $5000.00 you can
purchase and install one of these machines in a Laundromat off our list. Once installed, it’s there
forever. The average take per wash is $3.00. pure profit, no split with the operator. You will be able to
recoup your investment very quickly and then the money just starts rolling in.
If you have half a brain, you have just laughed me out of the room. I only use this example because
this is how the scam started. It moved from here to ATMs to Trailers. No doubt visions of this machine
being loaded with cats and small children and otherwise malfunctioning and overflowing have flitted
through your brain. Please keep in mind that every bad thing that can happen to the ValueMax 2100
can also happen to your little video rental goldmine machine. Welcome to the world of Unlimited
Let us set aside the silly details of who fixes the thing when it breaks and who physically collects the
money for a moment. You really don’t want one of these machines because you have never seen one
in operation. All of the big washers you’ve ever seen are broken or have some weird hand written sign
on them. There’s a reason for this. Sadly, it’s the same reason your machine will wind up in the same
There are several ways the Vacancy Scam plays out. In the case of the ValueMax 2100, it’s an
overpriced malfunctioning piece of crap to begin with. Once you have become fed up with the repair
and other costs, you just walk away from it. I then claw back my ownership of the machine (we will
cover claw backs in a moment), turn around and offer to sell it to the Laundromat operator. He either
pays me or it just sits there in its normal non functioning state. If I have real balls, I offer to remove it…
for a fee.
If you look around your average unaffiliated quick market or grocery, you will probably encounter one
or more unplugged out of order vending thing. These are the remains of Vacancy Scams of yore,
many of them ATMs of dubious make or Telephone card vendors. For $5000.00 you too can add to
the menagerie of the abandoned. And if you can’t find them, it is probably because the shop is
relatively new or has a new operator. Which leads me to the other part of Unlimited Liability.
By Unlimited Liability I am referring to any uncontrolled circumstances which are going to wind up
costing you money or putting you out of business. Unlimited Liability is the number one reason for
Vacancy, your walking away from the machine. Like the ValueMax 2100 your Videodrome 2100 is at
least going to break. If it breaks, it’s a cost. Your cost. You may not have to pay it now—especially if
you are still in that magic four month guaranteed $100.00 return phase—but you do eventually. Unlike
a real vending machine servicing business, our organization doesn’t actually have any servicing arm.
We’re counting on Rick. You don’t want Rick to fix the machine. (You’ve seen the way he handles
cheese.) You have to call an approved service vendor. And every day your machine is broken is a
day you don’t make any money. And every day you don’t make money is another tick on the clock
towards your inevitable vacancy.
Unlimited Liability is so certain that the scam operator doesn’t have to have a nefarious plan from this
point forward. Remember Rick? Rick’s gone. You can see through your camera Rick’s shop is dark at
3:10 PM on a Tuesday. Next thing you know, there’s Rick’s former landlord holding up a sign to your
camera which reads ‘You have two days to get this piece of junk out of here or I am going to roll it into
the alley.’*3 At this point our scam operator is going to give you his only honest piece of advice and
tell you to walk away from it. So sad. You lose.
It is going to cost you more to remove, store and relocate your machine than it is actually worth. The
bottom line is that your machine is only worth about $800. But wait, you paid five grand for it! That’s
when it was a video rental. Currently it is gravity feed dispenser with a light box and card reader on it.
All of the programming that makes it a video rental that takes credit cards are going to have to be
redone. Really. You are honestly better off just leaving it.
Unlimited Liability can also be accelerated. The easiest way to do this is to not rotate the stock on
your machine. Or to stock it unattractively. The same twenty-one movies are only going to rent so
much. At some point the returns are going to drop and you are going to lose interest. That’s when the
claw backs start.
Claw Backs are the process whereby the organization gains the right to sell your machine to cover
your debts to them. Repair costs are a big claw back and they can be faked. How much does it cost to
swap out the brain box on the feeder control? Do you know? Unless you pay the repair costs directly,
you have to take it on faith. Even then, the repairman can fake it. If they want you out, they can get
you out. And at some point they will want you out. I’ll explain the pay off of the Vacancy Scam a little
Another claw back is the loss of a movie. When Netflix or the supermarket rental loses a movie, they
may or may not go after the customer for it. The movie studios do not charge them the full retail
price for the lost copy. It’s a forget debt. They are wired into the remaindering system. The movie
studio sends them another copy, gratis. Just keep them rental royalties coming, guys! You are not
tied into the remaindering system. When you lose a movie, the organization heads off to Wal-Mart
to buy you another copy, which it then marks up. Given that you only make a buck a rental, it doesn’
t take too many walk offs to really rain on your parade. Worse, this process can be accelerated
artificially. Like when they want you gone.
|But wait! I have the ATM/Credit Card acceptance thing! If they
charged for the rental, I can hit them for the retail price. Heck, I
can even mark it up to confiscatory levels to help offset my
cash walk aways. I’ll bet the scam operator really pushed you to
get that option, too. The ATM/Credit Card acceptance slot is
actually an automatic claw back device. It also aids in the
accelerated version of this scam, detailed later.