funding qfx for big w, page-2

Soem further info posted on QFX area. Note potential impact on DES

QFX is whitelabelling a postal+rental service for Big W, which means they have to fund it. Without knowing what Service Level Agreements Big W will have required to do the deal, lets at least assume a 10% "service" factor on New Release titles. That is for every 10 customers, there is 1 New Release title in stock of some description. This is exactly HALF the 'service' factor that Video Stores use - and Video Stores also offer the title "free" if its not in stock. Note the major drawback to the QFX model is the turnaround time - whilst you can see demand building, and probablyh run out to get more copies, you can make up the 7 day return cycle versus video store 24 hours without major capital expenditure each month. So, lets assume a 10% service factor, even though it needs to be much >>>> higher to make up for the 7 day ++ lag.

I am questioning how QFX will

a) initially fund the whitelabel to meet the expected ratio of required titles to participating members

b) continue to fund it if it grows, given that it seems to take some 12mths to break a customer to even point from the low end plan. I am working on an assumption that a DVD costs circa ~$30 to buy ex studio, and has 12 rental cycles before it is too scratched to be of any use - so set up cost per title is $2.50, plus return postage of $1.50, or $4 cost base per rental. Now throw in a revenue share for Big W, and it gets ugly quickly.

c) Given that Hollywood produces 20 new release per month on average, in order to have a 10% cycle rate between members

20 New Release x $30 each = $600 for ONE SET
to get 10% coverage of members (note 7 day return rate)

2000 "sets" of above = $1,200,000 for one months 'copies' (dont worry about title mix)

Given that they are spending nowhere near this according to 4C's - how many New Release titles does QFX actually have, and how long before "new" members realise that titles are based on a pyramid with a very thin wedge at the top - which will ultimately drive them away?

d) of more interest - how many customers have "free trialled" and never come back, probably for the above reason?

e) Whitelabelling works if you have "virtual" product like DESTRA's music store or RMA's movie downloads - I dont think its been done on physical product - problem is the inventory levels on New Release that QFX will need to have on hand.

f) Looks like this business is best coupled with Video Ezy or Network Video to leverage their in store stock, and use the actual Video store as the service centre point.

Can anyone tell me why DES is in this? And its goin to need to be stronger than the "community" argument.