LOS ANGELES (Reuters) - Walgreen plans to put kiosks that can make DVDs of popular movies in drugstore photo departments next year, using a new system that would increase selection while avoiding piracy.

A Walgreens store in Golden, Colorado, June 25, 2007. Walgreen plans to put kiosks that can make DVDs of popular movies in drugstore photo departments next year, using a new system that would increase selection while avoiding piracy. REUTERS/Rick Wilking

Recent change in copy-protection rules governing DVDs have freed Walgreen and other retailers to tap this new movie market by letting consumers burn digital copies onto blank discs at stores, industry watchers said.

Walgreen and CVS have tried to attract more customers in recent years by offering improved digital photo kiosks, in- store health clinics and exclusive merchandise.

For studios, the kiosks add to revenue, particularly from older and more niche content selections, without having to manufacture, ship and store them.

“We hope to launch DVD-burning kiosks in the next few months. We think its a type of solution that will work very well in our stores, giving us the ability to provide a virtual inventory to a diverse customer base,” said Tiffani Bruce, a spokeswoman for Walgreen, the nation’s largest drugstore chain, with more than 6,000 stores.

Last month, the DVD Copy Control Association, a group of movie studios and hardware makers that oversees the copy protection system for DVDs known as Content Scramble System (CSS), moved to allow its technology to be licensed more broadly, opening the door for DVD-burning kiosks.

Now Walgreen is working with Hollywood studios and consumers will be able to make DVDs in about 15 minutes.

“We believe it could right for most stores,” Bruce said.

Walgreen and other retailers are working with Sonic Solutions SNIC.O, which released software based on the recently approved industry specifications last month.

Sonic said consumers or retailers need special DVD burners and recordable discs to use its Qflix software, which also paves the way for download services from companies such as Amazon.com Inc AMZN.O, Wal-Mart Stores WMT.N Inc and Blockbuster Inc's BBI.N Movielink.

These services and Apple Inc's AAPL.O iTunes now mostly let users watch films on computers or devices such as iPods.

“The burning capability is a perfect complement to our Movielink download business, because it will eventually enable consumers to store movies on their hard drives or DVDs for future usage,” said Blockbuster spokesman Randy Hargrove.

He said Blockbuster would examine kiosks.

“We’ll continue to monitor it. If it makes sense to get into kiosks, it’s clearly something we could do,” he said.

Sonic has licensed its Qflix software to kiosk companies such as Polar Frog Digital LLC, which licenses films and television shows from studios.

“We’re in negotiations for content from all the studios to provide DVD-on-demand at retail. The last hurdle is deciding which content to license without upsetting existing retail partners,” Polar Frog Chief Executive Todd Rosenbaum said.

Studios initially will probably use the kiosks more to give older films a “longer tail” of availability, rather than offering new movies, for fear of upsetting existing retail partners and cannibalizing sales, said Kurt Scherf, principal analyst with Parks Associates.

Rosenbaum added that the studios are not likely to discount the DVDs.

Scherf has projected on-demand DVDs will generate $1.3 billion in revenue by 2011. Studios generate about $24 billion a year from DVD sales and rentals.

Reuters