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Tax incentives take a role in expansion of e-Play kiosks Thursday, January 25, 2007
By KEVIN PARKS
Harold and Kumar Got to White Castle. Whether or not they get to stay is up to market forces and movie moguls, investors and inventiveness, film fans and financial incentives, including a major tax break approved in early December by Columbus City Council. On Dec. 4, council members granted an eight-year, 65 percent Jobs Creation Tax Credit to e-Play LLC, which manufactures and distributes kiosk-based DVD vending equipment about the size of soda machines. e-Play officials and investors, who had already relocated the company and its 17 full- and 11 part-time employees from Prospect, Ohio, to the headquarters of Into Great Cos. on Olentangy River Road are hoping, in exchange, to create 119 new jobs, as well as invest $11.6-million in the firm. The tax break from city council, as well as a grant and possible loan from the State of Ohio, represent only part of the factors that went into the "go, no-go decision" on relocating e-Play to Columbus and test-marketing the kiosks in several central Ohio locations, including a White Castle on Kenny Road. "It's one more piece of the puzzle," said Alan T. Rudy, chief executive officer for e-Play as well as the founder, in July 2002, of Into Great Cos. Inc., a venture capital firm located in a former bank building at Olentangy River Road and West Third Avenue. "It certainly helps," said Tom Lambers of Prospect, the engineer-inventor who came up with the combination of technologies in the e-Play kiosks. "It provides incentives for investors to step up," added Lambers, who has sold the company but remains one of the three top investors. "It sweetens the deal a little bit for them and reduces the risk factors a little bit." "A little bit of funding can be the difference between giving up on an idea and going another two or three months," Rudy added. A few additional months, he said, can be the difference between make or break for a new outfit, between continuing to lose money and turning the corner into profitability. As for the exact figure of 119 new jobs, well ... "It's inexact at best," Rudy admitted. "We try to do the best we can. A lot of thought and times goes into it." Still, the CEO said, it's possible e-Play will only be able to support 60 new jobs in the years to come, although he remains very optimistic about its prospects. "I think we'll surpass 119 employees," Rudy said. Rudy, who grew up mostly in Kent, has a degree in chemical engineering from MIT. The New Albany resident also studied law and earned an MBA at Case Western Reserve University. He learned the business ropes at other companies for five years before moving to Columbus in 1994 to launch his own venture, a mail-order medical supplies business that grew and grew quite admirably, for the most part, until he sold the company to start Into Great. As the name implies, the idea behind Into Great is to find small companies with great ideas that need a good deal of help on the management side of things. "We try to stay away from just good ideas, because good ideas are a dime a dozen," Rudy said. Whether or not e-Play is a great idea, only time will tell, he said, but he obviously thinks so since Rudy is one of the major investors. Even with tax breaks, e-Play is entering what Rudy termed an "uncomfortable period" of spending on highly paid employees helping to turn out highly expensive high-tech equipment while losing money until the right business formula is hit upon over the coming months. "I think it's a pretty intriguing time," was how e-Play chief operating officer Chris Winslow put it. For now, the mostly highly touted aspect of the e-Play machines, their ability to burn high-quality DVDs within 30 seconds, is on hold. Although the marketing firm hired by the company continues to emphasize burn-on-demand, that's just not happening. Movie studio executives remain too concerned about copyright protection and piracy problems, so far, to permit burn-on-demand, Rudy said. It's "not in enough demand to move the studios off of their security issues," he wrote in reply to an e-mail question. "Before the end of 2007, we expect to offer a lot more downloading and burning," Rudy wrote, "but it is up to studios to release more. My guess is that downloading will grow faster than burning, but the market will want both." "Its time will come," inventor Lambers said of DVD burning. "Definitely, it will come. It's largely, we discovered, through our naivete, dealing with the very large studios. We found them to be very large, and I hate to say it, bureaucratic organizations. "Hence, it's largely political as to their comfort levels with things." Encryption methods exist and have been demonstrated to studio executives, Lambers added, so he feels their eventual approval is only a matter of time. e-Play machines are currently being test-marketed at, in addition to the Kenny Road White Castle, four area Meijer's stores, two Wendy's restaurants and in three terminals at Port Columbus International Airport. A recently reached agreement will see some of the kiosks going into locations on the campus of Ohio State University, according to Rudy. Studio-produced disks, without the containers they are sold in at retail outlets, can be purchased at the kiosks for between $10 and $20. So far the machines, which offer retailers the advantage of having large DVD inventories for sale from relatively small vending machines, are doing pretty well in the airport and Meijer's locations, Rudy said, but less so in the fast-food operations. DVD rentals are currently growing at a flat rate, chief operating officer Winslow pointed out, while sales have been growing significantly. "People end up with large inventories at home that they don't have a need for," he said, making the sell or trade model potentially very lucrative. Much money is at stake as e-Play's people seek to tap into a DVD market estimated by some industry sources as $200-billion a year.
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