Firm Envisions a Lead Role for VCRs in Hotel Rooms

COSTA MESA —  VideoRated Inc.’s idea of the perfect hotel guest is a frequent traveler who is addicted to the movies and wants a quick fix.

The videocassette-distributing company is counting on traveling movie buffs, easy-to-use videocassette players and cassette vending machines to conquer the television entertainment market in motels and hotels, nudging cable television movie channels out of the picture.

The 18-month-old Costa Mesa company installs and maintains videocassette players and vending machines in hotels under contracts that let the hotels keep 15% of the movie rental receipts, according to Vincene Killen, chief financial officer.

VideoRated and its investors divide the rest of the return. The cassette players and vending machines are installed with money invested by limited partners.

43 Hotels

Since last October, the company has negotiated and entered into five-year contracts with 43 hotels with a total of 6,500 rooms.

VideoRated also has signed a contract with Best Western, giving it the right to negotiate with each of the 1,900 hotels in the chain.

After attracting its first clients in California, the company is slowly moving into other states, including Florida, New York and Tennessee.

The company was started in Costa Mesa in October, 1985, by Tom Platfoot and Clifford Hanson, owners of a photo-finishing business who thought videos would be more entertaining than the average television fare for hotel guests.

They financed the company with $150,000 from the photo firm and installed the first video players and distribution machines in two hotels in May and October of 1986.

$40,000 Loss

For its first full year, VideoRated posted a $40,000 loss on sales of $4,000.

During the year, Killen said, the company raised $1.2 million from the public sale of stock and warrants.

In December, VideoRated merged with Dun Ventures Inc., a holding company in Nevada, in a reverse acquisition that enabled VideoRated to go public without the expense of an initial offering.

Concentrating on upscale hotels, VideoRated wants to reach travelers who are likely to stay a couple of days, Joe Kowal, director of sales, said.

For $5.95 a day, hotel guests can rent all the movies they can watch in a 24-hour period from a VideoRated vending machine, Kowal explained.

And the company doesn’t mind if guests bring their own tapes and use them in VideoRated’s tape players--for free.

“In fact, hotel owners may find that their business traveler guests can use their own tapes in our machines and use them as educational tools for their clients,” said Larry Statt, vice president of operations.

Guests at the 200-room Airtel Plaza in Van Nuys, where VideoRated finished installing video players in mid-February, have been happy with the service, said Gene Connolly, director of sales at the hotel.

Many of the cable channels play the same movies at the same time, Connolly said. “Our guests ended up seeing the same movies. With the rental tapes, they choose what they want to see. And many of them were surprised when they saw the players in their rooms.”

‘Waste of Money’

Research analyst Joseph Doyle of Smith, Barney in New York isn’t impressed with the program. He said that installation of video players in hotels is “a waste of money.”

“There’s enough on television for people to watch,” Doyle warned.

“Videocassette companies who are going to install players are going to have to rely on resort-oriented hotels. That’s when it will make any sense. Regular cable service with CNN, sports and movies seems to be enough for the business travelers.”

But VideoRated’s Killen argues that guests are not happy with cable and other hotel television entertainment.

“Videotapes are a matter of convenience and choice that cable companies cannot offer to hotel guests,” she said.

“I’m not much of a movie buff, and I don’t even know the movies that were nominated for Oscars. But I know the complaints about television are there. The video player and cassettes gives people what they want to watch,” she said.

“We want our videocassette players and distribution centers to become sort of like swimming pools in hotels. Guests might or might not use them. But they expect them to be there,” said sales director Kowal.