News
New Point of Sale RF Technology to Debut From Kestrel Wireless
By
Jun 7, 2006, 23:33

Speaker Bio:

Frank LoVerme is Sr. VP of Business Development at Kestrel Wireless. He has held executive positions at Deluxe Media Services, Ritek Global Media and Warner Advanced Media Operations (WAMO) - - where he helped launch the DVD format.  He earned an MBA in Management at Pepperdine University.

Presentation Overview:

Protected DVDs and Consumer Electronics are Activated at the POS
Kestrel Wireless, a company founded by former studio, credit card transaction and DVD replication executives, has developed technology that, when embedded in DVDs, prevents DVD playback until the item is paid for at the POS.

Starting next year retailers will begin to use Kestrel’s RF Activation™ (RFA) to eliminate supply chain and retail theft of DVDs (and also electrically powered products such tools, TVs and cameras) by specifying that vendors ship their products in a disabled state.

Intelligent Denial of Benefit
RFA is based on a simple idea: people don’t steal products that they know don’t work.  Car stereos were once a high theft item.  But the problem largely disappeared when new technology made stolen stereos worthless.  In the same way, by disabling products as they move through the supply chain, RFA removes the incentive for theft.

The shopping experience is negatively impacted when consumers are subjected to difficult-to-open packaging, EAS false alarms and invasive scrutiny.  When thieves know a product has been disabled by RFA, retailers will be able to move products out from behind locked displays, increasing sales and increasing customer satisfaction.

RFA Compliments EPCglobal Compatible ICs
During the manufacturing process, an RFA chip is embedded in a DVD and coupled to an electrochromic film.  The electrochromic film acts like an optical shutter that prevents a DVD player’s laser from reading the DVD’s startup files until the disc is activated at the POS using an RFID reader.  The process is transparent to the consumer.

Since the RFA chips are EPCglobal RFID chips with extensions, all the logistical benefits of RFID are available from that RFA chip.

Each RFA is Immune to Serial Hacks
Activation is linked to a payment transaction.  It all happens in less than half a second.  

Possession of a reader by itself is not enough to turn the product on - - which means it’s not necessary to trust the retailer or their employees.  Even if someone were to steal a reader, they’d still need to access the network to unlock each stolen item, and without prior knowledge of what is stored on the chip, they cannot unlock it.

Unlike DVDs’ algorithm which was hacked to create a class failure, each RFA is unique and immune to serial hacks. This is not to say that a chip cannot be hacked. However, the result of that hacking would be access to a single product only - - and that assumes the product itself is not destroyed in the process.  By limiting the benefits of hacking to one-off product activation, RFA ensures that the cost of this hacking is prohibitively expensive.  By raising the bar so high, hacking is not an acceptable value proposition for a thief.  

Unsold DVDs do not have to be Returned to Get Credit
RFA allows a retailer or studio to “kill” DVDs so the discs will not be able to ever be played and then provide an audit confirmation to the studio that the DVD was not sold.  Because the retailer can then just trash the unsold discs, this cuts the high costs of returning unsold DVDs.  Recyclers are at the ready to purchase the killed DVDs.  

RFA’s kill feature is increasingly significant as the DVD market matures.  Since returned discs no longer have an expanding consumer base to soak up inventory, returned inventories are swelling.  

Because new release windows have shrunk to the point where 60% to 80% of a typical new release title’s DVD life cycle sales are made in the first 10 to 14 days, studios must stuff the channel to avoid lost sales.  Big box retailers’ DVD returns rates are now approaching 35%.  Chain supers’ and drugs’ returns can reach 60%.  Studio insiders predict that as much as half of these returns will eventually be destroyed.

It Costs More to Return a DVD than its Manufacturing Cost
When all the administrative friction, overhead and handling are calculated, the combined costs to retailers and studios are $1.00 to $2.00 each depending on the channel to bring back an unsold DVD unit.  When theft is eliminated, RFA DVDs can be placed in low cost paperboard packaging that is meant to be opened - - reducing the manufacturing cost of a royalty free, retail ready DVD to well under $.50.  This math makes a compelling argument to use RFA’s kill feature.

And not only can RFA provide retailers and studios significant savings in primary retail channels, the kill feature and its audit trail allows studios to execute programs in the alternative channels such as convenience stores and quick service restaurants that may not have the infrastructure to handle returns.
RFA Activations will be a Key Application for NFC Enabled Phones
Another returns avoidance model is based on an RFA variation that will embed chips with NFC (Near Field Communications) capability.  

NFC offers two very large and eagerly anticipated opportunities: mobile phone activation and authentication of products and activation via NFC payment terminals.  NFC is an RFID-like short range wireless communication system being deployed in the next generation of smart credit/debit cards.  NFC enabled phones are currently shipping and by 2010 most new cell phones are projected to include NFC.

Kestrel is working with a major semiconductor manufacturer to support RFA in their NFC chips for payment terminals and mobile phones.  This means that a DVD can be activated either at-home, at the office or on the road by using an NFC-enabled mobile phone (or low cost Internet dongle).

Mobile activation will become an extension of a retailer’s on-line relationships.  Imagine buying a DVD 10-pack that includes a single activated DVD of a TV series’ first several episodes of season one and also includes 9 more disabled discs that complete the first 3 seasons.  If the 9 disabled discs are priced at COGs plus, the 10-pack perhaps retails for around $20.00.  If all 9 discs are activated at, say, $15.00 each, the potential added revenues are $135.00.  In this way the consumer can activate each RFA DVD via a retailer’s e-store whenever and wherever through his NFC cell phone.

RFA is Inevitable  
Because the DOD, FDA and leading retailers are starting to require RFID, before long many CEs and DVDs will be RFID-item specific - - based on the logistics ROI alone. With the elimination of theft added to the logistics ROI, a major retail executive has called RFA the “killer app” for RFID.  Getting rid of packaging security, adding new channels and reducing returns costs are bonuses.

For more details call Frank LoVerme at 818.402.9935.



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